Sunday, 07 March 2010 20:13
Craig V. Butler
After clearing the SEC and FINRA, DTC approval used to be a matter of course for a company ready to be publicly-traded, now it is an obstacle barring some companies from trading, what happened? Imagine successfully navigating the 110 meter hurdles and crossing the finish line only to find another hurdle in your path at 115 meters? That is exactly what many smaller issuers are encountering. After successfully navigating their registration statement through the Securities and Exchange Commission and their 15c2-11 through FINRA, and actually getting a trading symbol for the OTC Bulletin Board, some smaller issuers are being told their shares cannot trade electronically due to a holdup at The Depository Trust Company (DTC). Not only is this holdup an aggravation for the company and its shareholders, it can be a very expensive one due to the fact the company is already subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (“Exchange Act”). What happened? Why has DTC-eligibility become a road block? What is DTC? DTC is a subsidiary of The Depository Trust & Clearing Company. According to its website, DTC was created in 1973 to “reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making "book-entry" changes to ownership of the securities. DTC provides securities movements for NSCC's net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker/dealers), as well as money market instruments.” Everyone got that? O.k., in layman’s terms this means DTC provides the electronic basis through which stock sales bought and sold through brokers are transferred from the seller’s brokerage account to the buyer’s account. For example, when you place an order through your broker to buy shares of XYZ, Inc. that order goes through your broker to a clearing firm and then on to DTC to be processed. DTC receives the order and then operates back through the clearing firm and the seller’s broker to move the shares from the seller’s account to the buyer’s account. It is in this manner that shares are bought and sold electronically since, obviously, paper certificates are not transferred between owners that own shares in “electronic format” in their brokerage accounts. Therefore, if an issuer is not “DTC-eligible” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace (especially the OTC Bulletin Board), means shares of the company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all the companies on the OTC Bulletin Board). What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTC Bulletin Board, it is a necessity to process trades on the OTC Bulletin Board if the company’s stock is going to trade with any volume. Read 0 Comments... >>
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Sunday, 07 March 2010 14:48
Craig V. Butler
If you are an officer or director of a small public company with a fiscal year end of December 31st, as you read this you are about one year away from requesting an auditor attestation report in compliance with Section 404(b) of Sarbanes-Oxley from your company’s independent auditor. If your company has a fiscal year end of June 30th, you are much closer as the independent auditor attestation reports mandated under Section 404(b) are schedule to kick in for smaller reporting companies starting with the end of their first fiscal year after June 15, 2010. The purpose of the article is to answer some of the most common questions we are being asked by our clients, as well as, provide a brief overview of what Section 404(b) mandates, determine if any relief is in sight, make suggestions as to what officers and directors of smaller reporting companies should be doing now, and then a brief opinion regarding what this author thinks our legislature should do with Section 404(b) as it applies to small public companies. Section 404(b) of Sarbanes-Oxley I won’t fully recite the history of Section 404(b) and what it mandates in this article as that information can be found in innumerable sources on the Internet. However, a brief overview is helpful. Under Section 404(b) of the Sarbanes-Oxley Act of 2002, companies are required to get an attestation from their independent auditors regarding the effectiveness of the company’s internal control over financial reporting. Companies that are “large filers” had to start complying with Section 404(b) in 2004, but the Securities and Exchange Commission has repeatedly extended the deadline for non-accelerated filers (including smaller reporting companies). On October 2, 2009, the SEC announced another extension for small public companies, which is set to expire beginning with the annual reports of those companies for their fiscal years ending on or after June 15, 2010. In granting this extension SEC Chairman Schapiro indicated no further SEC extensions would be forthcoming and all companies needed to “act with deliberate speed to move towards full Section 404 compliance.” Read 0 Comments... >>
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Monday, 15 February 2010 21:03
Brian A. Lebrecht
In October 2006, I wrote an article outlining the parameters under which a company can purchase its own stock in the open market. That article can be read here. On January 25, 2010, the Securities and Exchange Commission proposed amendments to Rule 10b-18. The SEC’s Proposing Release can be read here. The intent of the amendments is to update the rule responsive to modern market developments. As of the date of this article, the Proposal is open for public comment, and comments can be read here. The comment period is scheduled to end on March 1, 2010. There are four basic conditions that must be satisfied in order for an issuer to repurchase its own stock pursuant to the safe harbor of Rule 10b-18. The conditions are set forth below, each followed by the proposed update, if any. 1. One broker or dealer. Purchases must be effected from or through only one broker or dealer on any single day. If there is more than one affiliated purchaser of the issuer purchasing on a single day, they must all use the same broker or dealer. It should be noted that the “single broker or dealer” condition only applies to purchases that are “solicited” by or on behalf of an issuer. Therefore, purchases may be made by more than one broker or dealer as long as the transactions are not solicited, which is determined on a case-by-case basis. Read 0 Comments... >>
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Monday, 11 January 2010 16:03
Craig V. Butler, Esq.
Organization formed to meet the unique needs of smaller reporting companies, which are not currently being serviced by existing media and other sources Directors and executive officers of smaller reporting public companies receive all the same various publications and e-mails related to new rules and regulations promulgated by the Securities and Exchange Commission that larger public reporting companies receive, and most have the same question: How does this affect my company? It is no secret that most organizations, including large law firms and trade organizations, that publish announcements related to new rules or regulations promulgated by the SEC do so to attract the attention of larger public companies (accelerated filers) and, therefore, the content does not address how the new rules and regulations affect smaller reporting companies. It is also no secret that many larger law firms, accounting firms, consulting firms and investor relations firms do not represent smaller reporting companies, or if they do, they do not meet their informational needs since they have larger clients on which to focus their attention. With this premise in mind, The Lebrecht Group, APLC created the Smaller Reporting Company Alliance (SRCA). SCRA has multiple objectives, with the primary one to be a one-stop shop for officers and directors of smaller reporting companies. A place where they can come to the website and stay informed of new rules and regulations and the impact they will have on their companies. Additionally, the directors and officers will have the ability to ask service providers that service smaller reporting companies questions related to things that impact their companies; as well as find a variety of service providers if they are looking for a particular provider for their company, such as an attorney, auditor, CFO consultant, investor relations firm, and many others. Read 0 Comments... >>
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Monday, 07 December 2009 20:08
Brian A. Lebrecht
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. Read 0 Comments... >>
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