As most of us already know, on March 27, 2012, the House passed the JOBS Act.  The JOBS Act does a variety of things, all of which (at least theoretically) are good for small business and capital raising.  Among other things, the JOBS Act increases the threshhold number of shareholders a company may have before it is required to become reporting, it outlines a framework for crowdfunding, and it introduces the concept of an Emerging Growth Company.

But, in my opinion, the single most important part of the JOBS Act is that it eliminates the prohibition on general solicitation and advertising for 506 offerings.  Remember that Regulation D, Rule 506 offerings are “covered securities” under NSMIA, which means states are required to follow federal law with respect to the exemption.  So now, not only is general solicitation allowed, but the states have no choice but to also allow it.

There are some caveats.  All investors must be accredited investors, and it looks like the SEC is going to come up with guidelines as to how an issuer must confirm that all investors are accredited.  And this isn’t effective yet, the SEC has 90 days to implement specific rules on general solicitation.  But this aspect of the JOBS Act has the potential to change the way private placements are conducted.

When FINRA Rule 6490 was approved many thought it would streamline the

process to effect a corporate change, why is it failing?

By:  Craig V. Butler, Esq.

Introduction

FINRA Rule 6490 was approved by the Securities and Exchange Commission on July 1, 2010, with the stated purposes of adopting rules to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade and protect investors and the public interest.  Having taken numerous clients through the 6490 process to effect corporate actions since that time it is difficult to discern whether FINRA is accomplishing the stated purposes of Rule 6490 when it was enacted, but it has become apparent that the Rule has greatly (and largely unnecessarily) impacted the way over-the-counter companies effect corporate changes.  If the issues caused by Rule 6490 were a trade off for FINRA effectively achieving the stated results of the Rule then perhaps the Rule could be justified, but that does not appear to be the case.  The primary issues related to the Rule are lack of communication, impossible coordination and lengthy delays.  The purpose of this article is to identify these issues in the hopes of resolving them.

Background

Issuers and their attorneys do not have to go back far in time to remember when corporate changes were enacted and went effective on the over-the-counter marketplace through a series of letters to the state of incorporation, the transfer agent, CUSIP, DTC and FINRA, among others.  Admittedly, the process was a bit scattered, but in the end the Issuers and/or their counsel coordinated the required shareholder and director’s resolutions, the filing of the amendment to the Articles of Incorporation with the state of incorporation, obtaining the new CUSIP number, notifying the transfer agent and DTC, and working with FINRA as to when the action would go effective, sometimes on as little as three days notice.  Against this backdrop FINRA proposed Rule 6490, which, when approved by the SEC, implemented a process to effect corporate actions, part of which included FINRA coordinating the corporate changes, including an application, fees, and collecting all the information from the Issuer and/or its counsel, including notarized Board of Directors and shareholder resolutions, file-stamped amendment to the Articles of Incorporation, the new CUSIP number, the transfer agent verification form, and coordinating with certain entities, such as DTC, to effect the corporate action.  Initially the process appeared to work, albeit a bit slow, however, coordination was problematic.  But sometime around late summer 2011 FINRA implemented a “more detailed legal review” process that it warned could significantly delay the process.  In many cases this ended up being an understatement.  So while the process may now be a more coordinated one, it has not shown to be streamlined in terms of communication, timing or coordination, causing issues and headaches for over-the-counter companies effecting corporate changes.

Issues with Rule 6490

Rather than deal in abstracts to outline the issues with Rule 6490, the following are three real world examples of the recent corporate changes we have effected for our clients.  The relevant dates are changed but the number of days in between each significant date are the same as what actually occurred.  The names of the companies are withheld, but the rest of the information is based on actual cases.

Company No. A:  On August 17, 2011, Company A filed its amended Articles of Incorporation with its State of incorporation to change its name, increase its authorized common stock and authorize preferred stock, with an effective date of September 1, 2011.  On August 22, 2011, Company A filed its Rule 6490 application to effect the corporate actions.  Company A first heard back from FINRA on its application on August 29, 2011, wherein FINRA requested certain additional documents.  The Company responded on September 8, 2011.  The Company then heard back from FINRA on September 13, 2011, requesting one additional document that was not originally requested.  This document was supplied on the same day, September 13, 2011.  The Company then waited a week without hearing from FINRA.  After one week the Company’s counsel requested an update, which then seemed to trigger a response and the Company’s actions went effective two days later, or on September 23, 2011.  All told the process took approximately one month for a name change.  There was a couple day delay caused by the Company but the remainder was waiting to hear from FINRA.

Company No. B: On November 21, 2011, Company B filed its amended Articles of Incorporation with its State of incorporation to change its name, with an effective date of December 11, 2011.  On November 22, 2011, Company B filed its Rule 6490 application to effect the corporate action.  Company B first heard back from FINRA on its application on November 23, 2011, wherein FINRA requested certain additional documents.  The Company responded on November 24, 2011.

The Company then heard back from FINRA on November 25, 2011, in an email saying “Following an initial review, the staff will contact you via e-mail regarding any pending matters and may request additional information if deemed necessary.  The omission of material information or failure to provide the required documentation will cause certain delay in completing the corporate action in the market place.”  Despite requests for an update on December 2, 2011, and again on December 3, 2011, the Company did not receive a response until December 9, 2011, when FINRA said “This file has been escalated for further review by management pursuant to Rule 6490. I will provide a status update when applicable. At this point I have no further information to provide.”

Updates were requested often, and responses were received as follows:

December 17, 2011, “This matter is still under review. Unfortunately, I have no further information at this time.”

January 24, 2012, “I had forwarded your email to my supervisor. I will follow up today in an effort to provide you with more substantive feedback.”

Finally, on February 6, 2012, the Company was notified that its application had been approved, and the name and symbol change was effective on February 7, 2012.  No additional documentation was ever requested after November 23, 2011, yet this seemingly simple name and symbol change took nearly two and a half months.

Company No. C:  On December 16, 2011, Company C filed amended Articles of Incorporation with its State of incorporation to change its name and increase its authorized common stock, with a stated effective date of December 29, 2011.  On December 23, 2011, Company C filed its 6490 application with FINRA to effect the changes.  With the filing Company C included the required notarized company Secretary’s Certificate, Board of Directors and shareholders resolutions, file-stamped copy of the filed amendment to the Articles of Incorporation and the other required documents.  The transfer agent verification form followed approximately one week later.  Other than an auto-response e-mail, there was no word from FINRA regarding the 6490 application until January 2, 2012 (16 days after filing the application) and the only request was a copy of the company’s original articles of incorporation.  The e-mail correspondence from FINRA included the statement:  “The Company’s request will go through a lengthy review process.  We ask for your patience and understanding during this time.”  My first thought was “now it’s going through a lengthy review process?  16 days after the application was filed?”  In the end the name change was approved by FINRA and effective on January 7, 2012, or three weeks after the 6490 application was filed.  The action took effect with the Company’s state of incorporation on January 2, 2012.  This issue is discussed in detail below.

These real world examples show the issues with the Rule 6490 process and what needs fixing.

Delay:  As noted above, a simple name change has taken as long as two months to go effective from the time FINRA received the 6490 application and required supporting documentation.  There simply isn’t a justifiable reason for such a delay.  Since I am not aware how any fraud could be perpetuated by changing the name of a corporation when the company’s prior names are easily discoverable, I cannot explain as to why it would take two months to approve a name change or even what could possibly need to be reviewed in that amount of time.  Considering many companies change their name in connection with either a new business focus or the acquisition of a business that will be the company’s business going forward, delays of two months to effect a name change could be detrimental to the company’s business, potential financing or numerous other issues.   It is also important to remember that for ’34 Act reporting companies the 6490 process does not start until after the 14-C or 14-A requirements have been met, which between drafting, waiting periods, copies, mailing, etc. normally is at least a 45 day process (for a 14-A process when you include time for proxies to be returned or a meeting to be held) or at least 20 days (for a 14-C if you start the process after filing and mailing of Definitive 14-C) so the 6490 process is adding 2-3 weeks beyond the Proxy/Information Statement timelines causing further issues to companies needing to accomplish these tasks to further their business.

Communication:  Notably in Company B and Company C examples above there were weeks of no communication from FINRA regarding the proposed company action.  In particular, in Company B’s situation there were numerous instances when FINRA was asked for an update and either received no response or a response that “the file is still being reviewed” with no further information.  Obviously, FINRA is not alone in being slow to respond, but when combined with the other issues surrounding the 6490 process better communication would go a long way to alleviating some of the frustration.

Coordination:  Although likely the least known of the issues relating to the 6490 process, the issue of coordination is the most legally troubling.  Due to the facts that FINRA requires the submission of the file-stamped amendment to the Articles of Incorporation as supporting documentation for the 6490 application, the amendment when filed must have an effective date listed (normally o.k. if it is a future effective date, but depends on the state), and that the company does not know when FINRA will approve the action and take it effective, the company is stuck with a coordination issue.  The company is left guessing as to the effective date it puts on the amendment to the articles.  Rarely, if ever, will the future effective date listed in the amendment to the Articles of Incorporation match the date FINRA wants to take the action effective (there is some say by the company here – they can delay it going effective with FINRA by a few days, but many times the company are putting 2-3 weeks in the future for the effective date in the amendment, but FINRA is taking much longer (up to 2 months for a name change in our experience)), which leaves the company in the situation of either having the action go effective with the state before it goes effective in the public marketplace, or having to withdraw the filing with the state and re-file it once FINRA notifies the company it is ready to go effective (meaning the company technically isn’t in compliance with what FINRA wants to process a 6490 application – file-stamped amendment to the Articles of Incorporation to effect the changes).  For a name change this coordination issue likely isn’t material.  The fact the corporate name changes with the state of incorporation prior to FINRA taking the name change effective doesn’t change the fact that the company is the same legal entity during the whole process.  However, for something like a stock split the lack of coordination could be a much bigger issue.  It is not hard to imagine the situation where a company effects a stock split at the state level by filing the amendment to the Articles of Incorporation with an effective date that passes, but FINRA has not effected the stock split and then the company agrees to issue shares, or issues shares, or a warrant holder exercises a warrant to purchase shares, or a convertible debt holder converts the note, or any number of share issues that could occur.  Are the shares pre-split or post-split?  What about a merger transaction where an entity is merged out of existence in connection with a transaction that happens at the state level at one time and with FINRA at another?  There are many situations where this lack of coordination could be an issue.  And while the CUSIP number associated with the shares will help avoid some issues related to the common stock, but what about the issuances of convertible securities and exercises prices of convertible instruments that may be issued, etc.  FINRA’s explanation regarding the timing of the effective date with the state versus the effective date with FINRA has been “… it is common for the state filing and FINRA’s announcement to not be on the same date. This will not cause any issues” (this was FINRA’s response to my inquiry about when FINRA would take an action effective so I could coordinate the filing with the state of incorporation) doesn’t cut it and does not appreciate issues that are simply not being addressed in the FINRA 6490 process.

Conclusion

The 6490 process was proposed by FINRA, and approved the SEC for the purposes of preventing fraudulent and manipulative acts and practices, promoting just and equitable principles of trade and protecting investors and the public interest.  While 6490 may be having a positive effect on some of these areas, it is difficult to tell.  However, what is easy to detect is the impact 6490 is having on companies attempting to effect corporate actions in a reasonable time frame.  If FINRA wants to fix the situation there needs to more delineated time frames so companies can better plan on when actions may go effective.  Besides an auto-response e-mail, most companies don’t hear from FINRA for two weeks or so after filing an application.  This is too long.  If the 6490 application is complete with supporting documents and for a name change, it seems 7-10 days would be reasonable and 10-14 days for a stock split, merger, etc.  There also needs to be much better communication between FINRA and companies.  By communicating better with companies, the companies will be better able to plan for corporate actions and timing them with their overall business plan.  Regarding coordination, the 6490 process needs to modified to much better allow for coordination between the state effective date and the FINRA effective date to stop the possible issues that could arise though the lack of coordination between these two effective periods.

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The Lebrecht Group, APLC provides comprehensive advice on a variety of corporate and securities law matters.  Please contact us if you have any questions.

Craig V. Butler, Esq. is an attorney with The Lebrecht Group, APLC, located in Irvine, California and Salt Lake City, Utah.  He can be reached at (949) 635-1240 or via e-mail at cbutler@thelebrechtgroup.com with questions or comments.  Please visit our website at www.thelebrechtgroup.com for future updates and other information.

In January 2011, Craig blogged on the proposed changes to the definition of accredited investor.  His blog entry can be found here.

Most of us have been using the new definition since January 2011, but on December 21, 2011, the SEC adopted the final rules.  Under the new definition, the value of a person’s primary residence is not treated as an asset for purposes of determining whether the person qualifies as an accredited investor on the basis of having a net worth in excess of $1 million. Correspondingly, borrowing secured by such primary residence, up to the estimated fair market value of the primary residence at the time of the calculation, is not treated as a liability in the net worth calculation. However, any debt secured by a primary residence in excess of the estimated fair market value of the property at the time of the calculation is treated as a liability in the net worth calculation.

The only significant change from the January 2011 proposed rules is that the final rules include a provision addressing the treatment of incremental debt secured by the primary residence that is incurred in the 60 days before the sale of securities to the investor.  If the investor borrows against the primary residence in the 60 days preceding the purchase of securities in the exempt offering, and the borrowing is not in connection with the acquisition of the primary residence, the debt will be treated as a liability in the net worth calculation.

We will be modifying our subscription agreements accordingly.

I have thus far resisted blogging on Facebook’s IPO, but I came across a story that I found interesting and relevant to discussions we have with our public (or about to be public) clients.  The issue is whether or not Mark Zuckerberg should maintain voting control of Facebook after it is a public company.

An article and discussion on the topic can be found here.

Pro-shareholder groups will argue no, that the capital structure of FB was manipulated so that public shareholders have no (or very little) say in who manages the company in which they invest.

Pro-management groups will argue yes, that he is the founder, the vision, and that nobody else is more qualified to be in control than Zuckerberg.  Besides, if you don’t like it, don’t invest.

This ties into a recent decision by the NYSE to limit the agenda items that brokers can vote on without seeking approval from their underlying shareholders.  This is an age old practice, designed to simplify the time and cost associated with obtaining shareholder approval for otherwise routine agenda items at shareholder meetings.  The NYSE is attacking this process by limiting the list of routine items.  Two of these limitations caught my attention:

• majority voting in the election of directors;
• providing for the use of written consent.

 A full discussion of the NYSE rule change can be found here.

What is best?  That is open for discussion.  In our experience, for smaller reporting companies, the time and cost associated with not having a concentration of voting power in the hands of management is viewed as a negative, and we have a variety of structures that we recommend to facilitate the ease with which controlling parties can exercise that power, while still acting in the best interests of their investors.

Often, smaller public companies want to take advantage of majority written consent of their shareholders, and the corresponding use of a Schedule 14C Information Statement, rather than a proxy solicitation and corresponding Schedule 14A Information Statement.  This can be done when one party, or a small number of parties, owns enough voting securities of the issuer to approve the desired action.  There are significant benefits to doing so, not the lease of which is time and cost.

But how many shareholders can an issuer approach, and ask to approve the pending corporation action, before it becomes a solicitation?  There is no published guidance from the SEC as to the number of people that may be contacted by management before such contact is considered a solicitation.  However, in the past, we have successfully argued the following:

1.  Rule 14a-2(b)(2) sets forth an objective number of contacts in the context of solicitations other than on behalf of the issuer, and indicates that not more than ten (10) is an appropriate number.  This number may be analogous to the situation described above.

2.  The relationship between the consenting shareholders and management of the issuer.  If the shareholders are in regular communication with management, and have access to management to ask questions, then contact between the two would not necessarily be only to seek approval for the contemplated action.

3.  The number of shareholders consenting as a percentage of the number of overall shareholders can be a factor.

What is the maximum number that is allowed?  Like many things, it depends.

We have written and blogged extensively about the increased scrutiny being put on broker-dealers when acting as a placement agent for Regulation D offerings.  See here.  We recently completed an assignment as due diligence counsel for a broker-dealer, and I am very pleased with the outcome.  We improved the offering by identifying several red flags that the issuer subsequently addressed, and ultimately both the issuer and our client were more comfortable, and dare I say more confident, in the quality of the offering.  I don’t have a way to measure this, but I suspect that the increased confidence will be reflected in the investor meetings, and may help the offering be more successful.  We start another similar assignment this week.

Update:  On November 2, 2011, the House passed H.R. 1070 by an overwhelming 421-1 vote.  The bill has been referred to the Senate.

As many practitioners know, one of the problems with a Regulation A offering is that you not only have to submit to a review of your offering materials by the SEC, but you also have to submit to a review of your offering materials by every state in which you intend to offer the securities.  Some states are competent and helpful, while others are….not.  In our experience, state review (coupled with a relatively small offering limit of $5 million) has historically made Reg A offerings unattractive.

That may be changing.  As many of you know, in March, Rep. Schweikert (AZ) introduced H.R. 1070, the Small Company Capital Formation Act of 2011.  The bill is most widely known for its proposed increase in the offering limit for Reg A offerings from $5 million to $50 million.  A summary of the original proposal can be found here.  But, of recent note, in June the bill underwent a markup session in the House, and a new proposed section 6 was introduced as follows:

‘‘(6) EXEMPTION FROM STATE REGULATION.— Any securities exempted under this subsection that are offered by any means other than through a broker or dealer shall not be covered securities with in the meaning of section 18(b) or exempt from State regulation under section 18(a).’’.

The proposed section 6 would presumably treat Reg A offerings just like Rule 506 offerings are treated at the state level.  States can’t regulate them, they can only require notice and collect a fee.  As you might imagine, state regulators do not favor section 6.  See here, and here.

The bill is pending a vote by the House Committee on Financial Services.  We will continue to keep you updated.

FINRA Rule 6490 requires that corporations whose securities are trading on the over the counter market (OTCQX, OTCQB, OTCBB or PinkSheets) timely notify FINRA of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, and name changes.  The Rule grants FINRA discretionary power when processing documents related to the announcements, and implements fees for these services. 

On November 11, 2011, Brian blogged about the fact a great deal of uncertainity (and delay) had entered the FINRA Rule 6490 process and that more was unknown about the FINRA review process than was known.  This week Brian spent about 15 mintues taking with a FINRA “analyst” about the 6490 review process and here is what we learned:

1)  The analyst does an initial review of the paperwork, requesting additional documentation when necessary.  This process typically take about 1-2 weeks after the 6490 application is submitted. 

2)  From there, the file goes to a legal review (this is new) and they look for anything and everything about the issuer from all available sources.  This review includes Google searches of the company, its management, chat rooms, the company’s web site, a review of trading activity, a review of all recent press releases for false statements, etc.  Basically, asking for any corporate action (name change, stock split, etc.) you are opening yourself up for a full review of anything to do with the company’s trading market.   

3)  After the legal review, they may have questions, or request additional documents, etc.  And you go back and forth until you satisfy them.  There are no guaranteed timelines, and no guarantee that anything gets approved. 

Not learned from the telephone call, but from recent experience, is that this process is now taking several weeks, and many times months, and the coordination between the issuer’s filing of their amended or restated Articles of Incorporation with their state of incorporation and the FINRA approval timeline is becoming increasing difficult, if not impossible, to properly coordinate leaving many companies with a corporate action effectuated with the state, but not with FINRA, which can cause confusion.  There are some things that can be done to coordinate the process so make sure you have competent legal counsel and plan ahead accordingly.

Rule 6490 (Processing of Company Related Actions), was approved by the SEC and effective on September 27, 2010.  The rule requires that corporations whose securities are trading on the over the counter market (OTCQX, OTCQB, OTCBB or PinkSheets) timely notify FINRA of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, and name changes.  The Rule grants FINRA discretionary power when processing documents related to the announcements, and implements fees for these services.

I first blogged on this in July 2010, and provided an update in August 2010 after I had successfully completed a corporate action in a reasonable period of time.   My blog can be found here.  Times have changed.

I have heard from several issuers in the last week who are embroiled in a 6490 review, and I’m involved in one myself.  FINRA is taking a very long time to review corporate actions, and is providing very little information to issuers about the timetable or status.  My current client provided full and complete documentation over 3 weeks ago, and I have heard horror stories of issuers in review for months.  The customary email message seems to be:

“This file has been escalated for further review by management pursuant to Rule 6490. I will provide a status update when applicable. At this point I have no further information to provide.  Thank you for your patience during this review process.”

and the following footer in emails:

“Please be advised that FINRA Rule 6490 (Processing of Company-Related Actions) has been approved by the Securities and Exchange Commission.  The Rule clarifies FINRA’s scope of authority when processing documents related to Announcements for Company-Related Actions for Non-Exchange Listed Securities and to implement fees for such services. Additional information regarding this rule can be found on the following links:

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9364

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p121988.pdf“

Unfortunately for issuers, the timeline to complete a name or symbol change, or stock split, is now more unknown than known.

UPDATE:  My clients name change went effective 76 days after we first filed our 6490 filing.

Form 15 is a simple form.  It’s one page, and requires only that the issuer check at least one of the five boxes.  However, there are complicated conditions to the use of Form 15, and the consequences of the filing are often misunderstood.

Background

           For a variety of reasons, many issuers no longer want to be a reporting company, subject to the requirements of the ’34 Act.  Most issuers, their management, and their counsel are aware that filing a Form 15 is a common way of exiting the system.

Form 15 serves two distinct purposes.  Its title is

CERTIFICATION AND NOTICE OF TERMINATION OF REGISTRATION UNDER SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR SUSPENSION OF DUTY TO FILE REPORTS UNDER SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

           The form can be used to either as a (a) certification and notice of termination of registration under Section 12(g) of the Securities Exchange Act of 1934, or as a (b) suspension of duty to file reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934.

Section 15(d) Filers

           There are two common scenarios whereby an issuer begins filing ‘34 Act reports with the SEC.  One is pursuant to Section 15(d), which applies when an otherwise non-reporting issuer files a ‘33 Act registration statement.

           The following is a quote from SEC Staff Legal Bulletin No. 18:

When an issuer’s registration statement under the Securities Act of 1933 becomes effective, Section 15(d) requires the issuer to file the reports required by Section 13(a) of the Exchange Act with respect to each class of securities covered by the registration statement. As the Commission has explained, the purpose of periodic reporting under Section 15(d) is “to assure a stream of current information about an issuer for the benefit of purchasers in the registered offering, and for the public, in situations where Section 13 of the Exchange Act would not otherwise apply.” The issuer must continue to file these reports until the Section 15(d) reporting obligation for each class of securities is suspended.

The Section 15(d) reporting obligation is suspended while a class of securities is registered under Section 12 of the Exchange Act. In addition, there are two other ways in which a Section 15(d) reporting obligation may be suspended. First, Section 15(d) provides for an automatic statutory suspension of this reporting obligation if, on the first day of any fiscal year other than the fiscal year in which a Securities Act registration statement became effective, there are fewer than 300 record holders of the class of securities offered under the Securities Act registration statement. Second, an issuer may seek to avail itself of the suspension provided by Rule 12h-3 at any time during the issuer’s fiscal year if it meets the conditions of the rule.

In order to rely on Rule 12h-3, the issuer:

• must be current in its Exchange Act reporting obligations;
• must have (1) fewer than 300 record holders of the class of securities offered under the Securities Act registration statement; or (2) fewer than 500 record holders and its assets must not have exceeded $10 million on the last day of each of the issuer’s three most recent fiscal years; and
• must not have had a Securities Act registration statement relating to that class of securities become effective in the fiscal year for which the issuer seeks to suspend reporting, or have had a registration statement that was required to be updated by Section 10(a)(3) of the Securities Act during the fiscal year for which the issuer seeks to suspend reporting, and, if the issuer is relying on the fewer than 500 record holder and $10 million in assets threshold noted above, during the two preceding fiscal year.

It is this last requirement, contained in Rule 12h-3(c), that has prompted issuers to seek no-action relief from the staff.

In order to avail itself of the suspension provided by Rule 12h-3, the issuer must also file a certification of termination on Form 15. If the certification of termination on Form 15 is subsequently withdrawn or denied, the company must file all reports that would have been required if the Form 15 had not been filed. Similarly, if in the future the issuer no longer satisfies the requirements under which it was able to cease reporting under Section 15(d), the suspension ends and the reporting obligation returns without any action by the issuer.

           Therefore, if an issuer is filing ‘34 Act reports with the SEC because it had a ‘33 Act registration statement declared effective at some point in the past, that has not been suspended, and thus is required to continue to file ‘34 Act reports under Section 15(d), then yes, the issuer must be current in its ‘34 Act filings before it can be relieved of that duty by filing a Form 15.  In this scenario, the issuer is relying on Rule 12h-3 and should check the corresponding box on the Form 15.

           The issuer’s ‘34 Act filing obligations are suspended immediately upon filing the Form 15, but if for some reason the Form 15 is denied by the SEC, the issuer has 60 days to file with the Commission all reports which would have been required if such certification had not been filed.

Rule 12(g) Filers

           The second common scenario is when an issuer voluntarily files ‘34 Act reports pursuant to Section 12(g).  This arises, for example, when an issuer has filed a Form 10 registration statement that has been declared effective at some point in the past.  This also arises when, following the effectiveness of a ‘33 Act registration statement, the issuer files a Form 8-A, which bridges the gap between Section 15(d) and Section 12(g).

           Note that there are situations where an issuer is required to file ’34 Act reports pursuant to 12(g), the commonly known “500 shareholders and $10 million in assets” rule.  If an issuer is required to file ’34 Act reports because of this rule, then they are not eligible to file a Form 15 at all.

           Therefore, if an issuer is filing ‘34 Act reports with the SEC pursuant to a Section 12(g) obligation, then no, the issuer is not required to be current in its ‘34 Act filings before it can be relieved of that duty by filing a Form 15.  In this scenario, the issuer is relying on Rule 12g-4 and should check the corresponding box on the Form 15.

           The issuer’s ‘34 Act filing obligations are suspended immediately, but the Form 15 doesn’t actually take effect until 90 days after it is filed.  This means that the issuer is still subject to Section 12(g), and thus is a reporting company, during those 90 days.

15(d) or 12(g)?

           How do you know if an issuer is filing ’34 Act reports under Section 15(d) or Section 12(g)?  The easiest way is to review the issuer’s edgar filing history and look for registration statements.  If there are ’33 Act registration statements (such as an SB-2 or S-1), but no ’34 Act registration statements (such as a Form 10 or 8-A), then the issuer may be filing pursuant to Section 15(d).  If there is a Form 10 or 8-A, then the issuer is likely filing pursuant to Section 12(g).  The other way to tell is by the issuers filing number.  A filing number that starts with “33” is a ’33 Act number, and means the issuer is probably filing pursuant to Section 15(d).  In the alternative, a filing number that starts with “000” is a ’34 Act number, and mean the issuer is probably filing pursuant to Section 12(g).

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           The Lebrecht Group, APLC provides comprehensive advice on a variety of corporate and securities law matters.  Please contact us if you have any questions.

           Brian A. Lebrecht, Esq. is an attorney with The Lebrecht Group, APLC, located in Irvine, California and Salt Lake City, Utah.  He can be reached at (801) 983-4948 or via e-mail at blebrecht@thelebrechtgroup.com with questions or comments.  Please visit our website at www.thelebrechtgroup.com for future updates and other information.