Tag Archives: 15c211

Do I Need 35 Shareholders Before Filing an S-1 Registration Statement?

No.  There is no minimum shareholder requirement to file an S-1.  Many startup companies with just one founding shareholder file S-1 Registration Statements as the first step to go public. So only one shareholder is required, along with audited financial statements, in order to file the S-1.

When are the 35 Shareholders Needed to Go Public?

The 35 shareholder requirement only applies at the time of the Company’s 15(c)211 application for a FINRA trading symbol, which a Market Maker does not sponsor until all SEC comments are cleared, and after the S-1 is declared Effective by the SEC.

Should a Company Acquire 35 Shareholders via Private Placement or After the S-1 is Effective?

While it is true that many companies acquire these 35 shareholders via Private Placement Memorandum (“PPM”) before the S-1 is filed, it is just as common for companies to sell free trading S-1 shares to friends, family and to the public as soon as the S-1 is declared Effective, in order to meet FINRA’s 35 shareholder threshold.

In many cases, it might be easier for the company to sell the S-1 shares after the Effective Date, since they are free trading and the investors may perceive less of a risk than buying restricted shares in the same company through a Pre-S-1 PPM.

The key is that those 35 shareholders are not required until sometimes months after the S-1 process is started, since the Market Maker cannot even sponsor the Form 15(c)211 application for the FINRA trading symbol until the S-1 is declared Effective.

Should We Delay our S-1 to Do a Larger Private Placement?

With that timing in mind, it makes little sense for private companies to wait forever to file their S-1 under the guise of attempting to sell more shares in a PPM.  Instead, some savvy companies considering an IPO via S-1 Registration Statement will use a Private Placement only to attract some already interested friends and family investors as shareholders so that they do not delay their S-1 audit.

Doing so allows those PPM friends and family shareholders to be listed in the S-1 as “Selling Shareholders” but also allows the S-1 audit to be completed without wasting a lot of time.   Since the audit is typically the most time-consuming part of the S-1, the sooner the PCAOB audited financials are ready, the sooner the company can go public.

OTC Markets Securities Lawyer for Companies Going Public

Matheau J. W. Stout, Esq. is securities lawyer with a practice focused on taking microcap companies public on the OTB Bulletin Board and OTC Markets OTCQB.  Entrepreneurs with questions about taking a company public via S-1 can contact Matt Stout at (410) 429-7076 or mstout@otclawyers.com for a no-cost consultation.

 

 

 

What are Unsolicited Quotations in OTC Stock?

Unsolicited Quotations are bid and ask quotes that market makers post to reflect unsolicited orders by their customers.

Do Brokers Accept Deposits of Stock With Only Unsolicited Quotations?

Yes. Many OTC brokers which specialize in over-the-counter penny stocks trading on the OTC Markets or OTC Bulletin Board will readily assist customers with deposits of stock even when the only quotations are unsolicited.  This is especially true if the OTC Issuer is an SEC reporting company and current in its filings.

Why Would a Stock Only Have Unsolicited Quotations?

Sometimes OTC companies are subject to FINRA or SEC trading suspensions for unexplained volume caused by spam.  At other times, many companies from the same industry are subject to increased scrutiny and several of them will have their trading suspended while FINRA or the SEC investigates allegations of wrongoing.

After a Caveat Emptor Label Many Companies May Lose Market Makers

Many of those companies are able to clear themselves of any wrongdoing, and remove the Caveat Emptor or Skull and Crossbones label, and they are subsequently cleared to trade again, but at first, no market makers remain willing to take the risk.

These OTC Issuers may once have had a robust trading volume with many well known market makers, but following a Caveat Emptor designation they might temporarily remain without a market maker to file a new Form 211 to comply with SEC Rule 15c2-11.  This could happen after a trading suspension, which lasts more than 10 days, for example.  At that point, only unsolicited quotations would be shown.

How are Unsolicited Quotations Published for Penny Stocks?

A customer will call his broker asking to buy or sell a particular OTC stock.  The broker then posts a quotation demonstrating the brokerage customer’s interest in the stock, which was not solicited by the brokerage. These quotations are marked as “unsolicited” quotations on OTCMarkets.com or on the OTC Bulletin Board.

OTC Markets Securities Lawyer for Shareholders and Issuers

Shareholders and Management of OTC Markets or OTC Bulletin Board companies can contact OTC Markets lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com with questions regarding trading suspensions, complying with SEC Rule 15c2-11, or clearing restricted stock.

 

What is the Piggy Back Rule?

The phrase “piggyback qualified” refers to a stock for a public company that has already had a Form 211 filed by a FINRA registered market maker, and meets the “frequency-of-quotation” requirement under SEC Rule 15c2-11(f)(3).

This frequency-of-quotation test is passed when a broker/dealer publishes quotations in the stock in the appropriate interdealer quotation system for a minimum of Twelve (12) Business days during the preceding Thirty (30) calendar days.   Also, during that time, there can be no greater than Four (4) consecutive business days without published quotations in the stock.

After this criteria has been satisfied, the stock is known as “piggyback qualified” and other market makers may publish quotations in the stock without filing their own Form 211.

What is an SEC Trading Suspension?

The Securities and Exchange Commission (“SEC”) has the authority to suspend trading in any stock for up to Ten (10) days when it believes that information about the Company may be inaccurate or unreliable.  Investors can search a list of SEC trading suspensions at SEC.gov.

Reasons the SEC Might Suspend Trading

  1. A lack of “current, accurate, or adequate” information about the public company–   If the Issuer is an OTCQB or OTCQX, this will cause OTC Markets to label it as a Pink Sheet until the filings are current.
  2. Questions regarding the accuracy of publicly available information–  This usually refers to press releases, but can also refer to periodic reports, like the 8-K, that mention financials, mergers or acquisitions.
  3. Trading in the stock–  A concern over insider trading or market manipulation involving email spam is often the cause.

Does trading automatically resume after the Ten Day Suspension?

Microcap stocks that are quoted on OTC Markets or on the OTC Bulletin Board (“OTCBB”) do not automatically resume trading following a 10 day SEC trading suspension.

In order for OTC Markets or FINRA’s OTCBB to resume quoting a suspended stock, the Issuer must have a market maker sponsor a new 15c2-11 filing.

Responding to an SEC Trading Suspension

SEC trading suspensions are valid tactics used by the Commission when there is a public interest concern over either a lack of information or the presence of new information that needs to be verified.

The proper response in either case is to make sure that the Issuer’s filings and press releases are current and accurate.  If a mistake was made, the Issuer should file an Amendment immediately.   Once the filings and news releases are current and accurate, then the next job for the Issuer’s securities counsel is to compile and present documentation which supports the statements made in the filings or news releases which caused the concern.

Public companies which post accurate new releases that state verifiable facts and avoid hyperbole should be able to produce supporting documentation within the 10 day SEC trading suspension, and after review by the SEC, the matter should end there.

While it is often true that an SEC review and response to such documentation could take longer than 10 days, and that a new 15c-211 filing may be inevitable, it is the Issuer’s responsibility to cooperate and assist the SEC in their investigation.   The sooner an Issuer provides documentation to the SEC, the sooner the trading suspension can be lifted.

Microcap public companies or shareholders with concerns over an SEC trading suspension or trading halt can contact securities lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

 

 

 

 

What is the Role of a Market Maker Under Rule 15c2-11?

Market Makers File Form 211 With FINRA

If a private company is using Rule 15c2-11 to become public, the company first needs a relationship with a sponsoring Market Maker that can file the Form 211 application with FINRA.   An experienced securities attorney works with several Market Makers and can recommend one willing to offer sponsorship.

Just as the SEC can provide comments on an Issuer’s S-1 Registration Statement, FINRA may also have comments to the company’s Form 211 application.  When FINRA does have comments, the company’s securities lawyer and Market Maker must respond to them in a timely fashion.

Market Makers Obtain the Company’s Trading Symbol and Quote the Bid and Ask Price

After the question and answer process, if FINRA believes the company’s disclosures meet the requirements of Rule 15c2-11, FINRA assigns the company a “ticker” or trading symbol which will allow the sponsoring Market Maker to provide a bid and ask quote for the company’s stock.

Other Market Makers Can Piggyback to Quote the Company’s Stock After 30 Days

When the ticker symbol and initial quotations are in place, these will be found on  OTCMarkets.com.   After the company’s sponsoring Market Maker has published quotations for the company’s stock for 30 days, other market makers can “piggy back” in order to also publish quotations for the security without doing their own due diligence or submitting another Form 211.

Can Market Makers Charge Fees for 15c2-11?

Market Makers sponsoring companies by filing the Form 211 are technically not allowed to charge or accept a fee for work specific to 15c2-11.  As a practical matter, Issuers do pay fees for other services that are needed in connection with the Form 211, in the sense that Market Makers can refer the due diligence package to a securities lawyer of their choice, and Market Makers often also provide DTC eligibility consulting by working alongside a securities lawyer like Matt Stout in the process of helping companies become DTC eligible.

Matheau J. W. Stout works with Issuers seeking assistance in the 15c2-11 process and can help companies find Market Maker sponsorship for Form 211.  Companies with questions about the costs and timeline of going public by 15c2-11, or about the DTC eligibility process can reach Matt Stout at (410) 429-7076 or mstout@otclawyers.com.