“If we want growing companies to go public, we need our public markets to be a competitive source of growth capital. One easy solution is to let public companies sell their shares in the same way they can now buy them back: through brokers directly into their established public markets. Removing the outdated restrictions on selling shares publicly will lower the cost of capital and attract more growth companies to our markets.”
The SEC recently published a paper on OTC equity securities on their website. While I am always happy to see more research around OTC equities, I am surprised by the paper’s overly negative and misinformed conclusions about the growth in OTC dollar volumes.
Moreover, I am concerned that these flawed conclusions, drawn from outdated research and a study of a small group of securities subject to investigative requests by the SEC or FINRA, will be used to develop new regulations that harm capital formation. Regulatory action based on this skewed sample could negatively impact the vast majority of companies that trade successfully on the OTC Markets.
The OTC Markets are More Transparent Today
The OTC equity market operates within a unique, often complex regulatory environment. While much of the securities industry focuses solely on federal laws and regulation, the companies, broker-dealers, investors and others comprising the OTC market must understand the impact of state “Blue Sky” laws as well. Continue reading “Understanding Blue Sky Laws”
By David Collins, IR Magazine | Tackling the challenges faced by small and micro-cap companies.
Life as a small or micro-cap public company is getting harder by the day as the pool of buy-side interest is shrinking almost as fast as sell-side research, and sales and capital markets sponsorship is contracting. Accordingly, the ‘smicrocap’ IRO’s task of finding worthwhile targets to pitch and introduce to management also grows more challenging – and, unfortunately, the smaller you are, the harder your job has become.
A key driver of the American economy is the capital formation process that fosters innovation and new enterprises. Entrepreneurs raise capital to grow their business, innovate and create jobs. For many smaller companies, the expectation is to conduct an Initial Public Offering (IPO) and list on a stock exchange – hoping to build liquidity and visibility, and ultimately, long term shareholder value. While these efforts are well-intention-ed, many companies today find themselves putting off the IPO because they do not want to be overwhelmed by the increasing management time commitment, red tape and costs associated with being a public company.
Recently, at a Crowdfunding conference in L.A., I met with three company CEOs all in the process of doing Reg A+ deals. When I asked them about their plans for secondary trading, I was surprised by the answer. All three responded with some variation of “we don’t plan on going public – we will just issue the shares, there won’t be a market.” Upon returning home I found another company advertising in GQ magazine offering shares for their Reg A+ deal. In the Risks and Disclosure section of their Reg. A+ materials I came upon this statement: Continue reading “Don’t Look Now: You’re Public”
During conversations with compliance and risk departments over the past year, the topic of shell companies always comes up. For diligent compliance officers the reason for this focus is obvious, shell companies and more specifically trading with their affiliates are noted specifically in key notices and regulations, including:
- FINRA Regulatory Notice 09-05 – Unregistered Resales of Restricted Securities: Shell company status at the time of issuance is noted specifically as a red flag.
- Office of Compliance Inspections and Examinations (OCIE) Alert October 2014 – Broker Dealer Controls Regarding Customer Sales of Microcap Securities: The alert noted that companies with nominal assets and low operating revenue should be a consideration when considering whether to file a Suspicious Activity Report (SAR).
- Rule 144 – Specifically bars the use of the 144 safe harbor for securities issued by a shell company or former shell company[i].
OTC Markets Group recently held a Regulation A+ Bootcamp at our OTC Market Center in Manhattan to educate public and private companies about how to do a successful Reg A+ offering and go public under the Jumpstart Our Business Startups Act (JOBS Act).
Speakers included the team behind Elio Motors’ Reg A+ offering – Ron Miller of StartEngine Crowdfunding, Inc., Darren Marble of CrowdfundX, Scott Purcell of FundAmerica, LLC, and Seth Farbman and Yoel Goldfeder of VStock Transfer, LLC – as well as other crowdfunding industry experts who discussed everything from the current state of the Reg A+ market to how to crowdfund an offering to legal and accounting considerations, the escrow process, selecting a transfer agent and making shares tradable in a public market. Continue reading “6 Key Takeaways from Our Reg A+ Bootcamp”
At first look, FINRA Rule 2114, Recommendations to Customers in OTC Equity Securities (The OTC Rec Rule), seems onerous and vague – two of a Compliance Officer’s least favorite adjectives. The initial requirement reads as follows:
“No member or person associated with a member shall recommend that a customer purchase or sell short any OTC Equity Security, unless the member has reviewed the current financial statements of the issuer, current material business information about the issuer, and made a determination that such information, and any other information available, provides a reasonable basis under the circumstances for making the recommendation.”
Continue reading “Quality Recommendations”