A “Shell”ter from 12(j)

In an article in the October edition of The Isolated Offering I authored an article regarding shell transactions and some advice for sellers of shell companies (the article can be found here: http://www.thelebrechtgroup.com/index.php/publications/tlg-publications/218-shell-transactions-revisited ).  One of the issues discussed is the fact that many shells available on the Pink Sheets are previous ’34 Act filers that are delinquent in their ’34 Act reporting obligatiions (10-Qs and 10-Ks primarily).  The article mentions one possible action item for these delinquent shells is the filing of a Form 15 to deregister the company’s common stock or terminate its ’34 Act reporting obligations.  Although this action does not cure the delinquent filings it does terminate the obligation for future filings.  Now, according to a recent Administrative Law Judge, the Form 15 also has the effect of remedying some potential Section 12(j) actions that may be brought by the SEC.  On October 22, 2010, an Administrative Law Judge found that the SEC could not continue an enforement proceeding against a delinquent ’34 Act reporting company after the company filed a Form 15.  According to the ALJ, since the Form 15 terminated the company’s registration under Section 12 of the ’34 Act the SEC could not continue an enforcement action against the company for being delinquent in its ’34 Act reporting obligations.  The ALJ found that since the only remedy under Section 12(j) of the ’34 Act for a violation of Exchange Act Section 13 and certain Exchange Act rules is either revocation or suspension of the registered securities and that was accomplished by the Form 15′s effect of withdrawal of the registration, the SEC action could not proceed. (See, In the Matter of Vikonics, Inc., SEC Release ID No. 405).  As metioned in my article, companies looking to be sold as a shell should already consider filing a Form 15 to cease the reporting obligations, but now it appears it has the additional advantage of acting as a shield against certain enforcement proceedings.