The Lebrecht Group, APLC

Rule 3(a)(10) Fairness Hearings: An Overview

As a general rule, all issuances of securities must either be (i) registered, or (ii) exempt from registration. When issuing securities for cash, issuers have a variety of exemptions to rely on, with the most common being Rule 506 of Regulation D. Because of the pre-emption provided by the National Securities Markets Improvements Act, issuers relying on Rule 506 have a state-level exemption to rely on as well.

However, in a merger or acquisition, finding an exemption is not such an easy task. In a typical merger or acquisition structure, the shareholders of the Target company will seek to exchange their stock in the Target company for stock in the Acquiring company. Like all securities issuances, the issuance of stock in the Acquiring company must either be registered or exempt from registration. But unlike securities issuances for cash, the shareholders of the Target company in a merger or acquisition are often numerous, from many different states or jurisdictions, and represent a wide range of investor qualifications (accredited, sophisticated, etc.). Often, the only solution given to the two companies by their securities counsel is registration. [more]

What if One of my Service Providers is Under SEC Investigation?

It eventually happens to all of us in the securities business, particularly those of us who provide services to public companies. One of the other service providers to the company comes under investigation by the SEC, or FINRA, or a state regulatory agency. It might be the company’s lawyer, auditor, public relations firm, investment banker, or a consultant. What should the company do? When one of our clients finds themselves in this position, we recommend that they take the following steps:

1. Investigate the Facts.
The first thing a company should do is conduct their own investigation. Don’t rely on the regulatory agency or the media to give you all the facts.

Depending on the circumstances, there maybe a wealth of information publicly available, or there may be very little. But the company, and more specifically its Board of Directors, has an obligation to gather all of the information it reasonably can and use that information in making its decision. The Internet provides a wealth of information, but other service providers should be contacted, as well as other customers of the investigated party. If a government agency is involved, often the individual responsible for the investigation is more than willing to discuss it with third parties. Remember that the government is trying to protect victims, and you may be a victim. [more]