“Pink Sheets Current”

by Brian Lebrecht on August 27, 2009

What are the OTC Market Tiers?

Pink OTC Markets, Inc. assigns an OTC Market Tier to each OTC traded company based upon the disclosure it provides to the marketplace.  For a detailed explanation of the different OTC market tiers, click here.  Pink Sheets companies can decide which OTC Market Tier they wish to be in and tailor their disclosure accordingly.  One of these tiers – Pink Sheets Current Information – offers considerable benefits to the companies identified on it.  

Why be on the Pink Sheets Current Information Tier?


1.       Raise Capital.  If you are not currently a shell company and you never have been a shell company, the resale of your company’s securities pursuant to Rule 144 may be available to your shareholders.  This is particularly important if you wish to raise capital because anyone who purchases securities directly or indirectly from you or any of your affiliates in a private placement may be able to sell such securities in an open market transaction after Rule 144’s mandatory one year holding period.  If Rule 144 is not available to your shareholders, new investors cannot resell their securities in an open market transaction, and thus are unlikely to invest in your company.  For companies that were previously shells, Rule 144 is not currently available unless and until you become a ’34 Act reporting issuer and meet other requirements; however, we hear rumors that a change to Rule 144 may be coming to allow resales for shareholders of former shells who satisfy current information requirements.


2.   Increased Liquidity.  According to the Pink Sheets, approximately 98% of the average dollar trading volume is generated by companies whose securities are identified on the Pink Sheets Current Information tier and higher, suggesting a strong correlation between company transparency and trading volume.


3.   Increased Exposure.  Companies can publish news releases on the Pink Sheets website and an announcement is created on the www.pinksheets.com homepage.  Releases are also automatically picked up by external news services, such as Bloomberg and Reuters, and “pushed” directly to all market makers.


4.   Reduced Insider Liability.  By making material information publicly available to all investors, companies may decrease the risk that their affiliates will violate SEC Rules 10b-5 and 10b5-1 of the Securities and Exchange Act of 1934, which relate to intentional fraud and deceit and insider trading.


5.   Satisfy Current Information Obligations at a Reduced Cost.  The framework of the Pink Sheets Current Information tier contemplates that attorneys are the primary gatekeepers with respect to providing adequate current public information.  As such, the legal fees for companies identified as providing current information may be substantially similar to the legal fees for SEC reporting companies.  Accounting fees, on the other hand, are significantly lower because the Pink Sheets Current Information tier does not require financial statements to be audited.


6.   Gain Experience in Reporting Obligations.  Some existing Pink Sheet companies wish to become ’34 Act reporting and move to other stock exchanges.  By becoming a Pink Sheets Current Information company, the officers, directors and employees of the company get an initial taste of the reporting requirements, get used to reporting quarterly and annually, and help determine if the company has proper personnel in place to move to other exchanges.

How do I get on the Pink Sheets Current Information Tier?


Current SEC Filers and non-SEC reporting federal or state regulated banks, insurance companies, and non-U.S. companies that are listed on a qualified foreign stock exchange automatically qualify for the Pink Sheets Current Information Tier.  Non-SEC registered companies that meet the following requirements will be identified as Pink Sheets Current Information:


1.   Subscribe to the OTC Disclosure and News Service;

2.   Post an initial Company Information and Disclosure Statement through the OTC Disclosure and News Service;

3.   Submit a signed Attorney Letter Agreement;

4.   Post an initial attorney letter regarding the adequacy of your current public disclosure;

5.   Publish Annual Updates to your initial disclosure statements, including GAAP compliant financial statements, through the OTC Disclosure and News Service, no later than 90 days after the end of each fiscal year;

6.   Publish Quarterly Updates to your disclosure statements, including GAAP compliant financial statements, through the OTC Disclosure and News Service, no later than 45 days after the end of each fiscal quarter;

7.   Publish current updates within 10 business days in the event that any of the information contained in the disclosure statement (including information contained in any prior update) has become materially inaccurate or incomplete, or upon the occurrence of certain material events; and

8.   Publish a quarterly attorney letter regarding the adequacy of your current public disclosure.


How much does it cost to get and remain on the Pink Sheets Current Information Tier?

1.   The annual fee to subscribe to the OTC Disclosure and News Service is $3,000.


2.   The annual accounting fees for the preparation of GAAP compliant financial statements will vary widely, but could be as little as zero if you have a qualified CFO who can prepare them, or as much as $30,000 annually if you use an outside accounting firm.


3.   The Lebrecht Group, APLC offers an annual plan to remain in the Pink Sheets Current Information tier.  The plan has a cost of $24,000 per year, payable $2,000 per month, and includes the following:


(i)         one (1) Initial Disclosure Statement or one (1) Annual Update;

(ii)        three (3) Quarterly Updates;

(iii)       up to six (6) Current Updates;

(iv)       up to four (4) attorney letters;

(v)        up to eight (8) legal opinions for the resale of shares under Rule 144; and

(vi)       review of all press releases before they are published.


If you are interested in qualifying for the Pink Sheets Current Information Tier, please contact one of the attorneys at The Lebrecht Group, APLC, located in Irvine, California and Salt Lake City, Utah at (801) 983-4948 or (949) 635-1240, respectively.  Please visit our website at www.thelebrechtgroup.com for further information.


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