Tag Archives: Matheau Stout

What is Regulation S?

Reg S Covers Offers and Sales of Securities to Non US Persons

A brief summary of Regulation S is that it provides safe harbors, and a possible exemption from SEC registration for sales of securities to Non US Persons. For the purposes of Reg S, a US Person would basically be a United States citizen, a US resident, or a corporation, LLC or Trust domiciled in one of the 50 US states.

The most important element of Regulation S is when securities are considered to have “come to rest abroad” so that their resale would not require registration under the Securities Act of 1933 (“Securities Act”).

Reg S Covers Offers and Sales That Occur Outside of the United States

Regulation S uses a “territorial approach” to Securities Act registration, which makes sense because this is a geographical issue.  The basic rules are that offers and sales subject to Section 5 of the Securities Act include any offers and sales occurring within the United States but that they do not include offers and sales that occur outside of the United States.

Must Be an Offshore Transaction with No Directed Selling Efforts in the US

Regulation S also includes several safe harbor exemptions addressing specific types of transactions.  Each Regulation S safe harbor is subject to two general conditions:

  1. The offer or sale must occur in an “offshore transaction.” The Seller must reasonably believe that the Buyer is offshore at the time of the offer or sale.  Or the transaction must happen on certain “designated offshore securities markets.”  This includes Canadian markets.  The transaction cannot be “pre-arranged” with a Buyer in the US.
  2. No “directed selling efforts” may be made within the US by the Issuer, a Distributor, any of their affiliates, or Agents acting on their behalf.  This essentially means no marketing whatsoever within the United States or on the internet, unless the website includes certain disclaimers designed to discourage US Persons from reading the materials.

Reg S Has Many Potential Pitfalls for Issuers and Shareholders

Reg S may sound simple but there are many more caveats associated with its use, including several nuances depending on the type of securities being offered,  and whether the Issuer is a foreign or US based company.  Depending on these factors, Regulation S may treat two OTC Bulletin Board or OTC Markets public companies very differently, and this has an impact on the Shareholder’s ability to cite Reg S as an exemption from registration.

Issuers considering using Regulation S, and Shareholders that own Reg S Shares can contact securities lawyer Matt Stout for further information at (410) 429-7076 or mstout@otclawyers.com



Foreign Broker Dealer Registration Under the Securities Exchange Act of 1934

Foreign broker-dealers are required to be registered under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”) unless they are exempt under the Foreign Broker-Dealer Exemption (Rule 15a-6).

Every broker dealer which physically operates in the US must register with the SEC even if their business is directed only to foreign investors outside of the boundaries of the United States.

Every foreign broker dealer that attempts to market securities to any person in the United States must also register with the SEC.   This marketing includes the use of the internet, including blogs, websites, and emails to offer securities to US citizens, residents or companies.

Further information on what foreign broker dealers can do to remain exempt under the Foreign Broker-Dealer Exemption is shown in this post by Matheau J. W. Stout, Securities Lawyer.

What is the Difference Between a Stop Sign and Caveat Emptor on OTCMarkets?

A Stop Sign Usually Means an Issuer is Simply Behind in its Quarterly and Annual Filings

Stop Sign       When a Pink Sheet Issuer falls behind on the filing of its OTCMarkets  financials and disclosures, it can be marked a stop sign (Pink No Information) on OTCMarkets.com.  This also happens when a former OTCQB, or bulletin board Issuer ceases to fulfill its SEC reporting obligations.  The bottom line here is that a Stop Sign is not in itself a “bad sign.”

Securities Attorneys Can Help Bring OTCMarkets Filings Current

If the only reason for the Stop Sign is that the Issuer is behind in its filing, and if those filings can be made current, then this presents an opportunity for new management.  A securities attorney can call the helpful staff at OTCMarkets.com to review the history of the Issuer and find out if there is another other substantive issue that caused the Stop Sign.  If not, then the matter is simple enough:  the Issuer needs to subscribe to OTCMarkets’ Disclosure and News Service, and bring its filings current.  The costs involved are easily quantifiable by securities lawyers like Matheau J. W. Stout, and it always makes sense to find out, even if an Issuer is not ready today to begin posting past due filings.

Issuers Marked Caveat Emptor Are Not Always Guilty of Wrongdoing

caveat-emptor       In contrast, Caveat Emptor (Skull and Crossbones) stocks are believed to have some negative element in their past history, which is significant enough for OTCMarkets.com to warn all prospective investors:  Buyer Beware.  In some cases, past management or promoters associated with the Issuer have become entangled in SEC problems unrelated to the Company, or are the subject of state inquiries.  Sometimes there were actual violations of securities law that are connected to the Issuer itself, and sometimes there is simply a misunderstanding that can be fixed by presenting evidence to the regulatory authorities involved.

Undocumented Press Releases and Violations of State Blue Sky Laws are the Reasons Why Many OTCMarkets Issuers are Marked Caveat Emptor

On many occasions, these inquiries stem from press releases that were deemed questionable by officials, and in others someone has inadvertently run afoul of state Blue Sky laws which govern the process of registering sales of stock in private placements.   In all cases, there is a process by which management can provide documentation and other evidence to clear the persons involved, and thus the Issuer, from any wrongdoing.   Sometimes the management and shareholders of an Issuer marked with the Skull and Crossbones decides its not worth the time and costs involved in “cleaning up” their vehicle.

Issuers Marked Caveat Emptor May Be Able to Clear Themselves of Any Wrongdoing with a Securities Lawyer’s Help

It makes sense for controlling shareholders to hire a qualified securities law firm, like the Law Office of Matheau J. W. Stout, Esq. to perform some due diligence into the matter, so that the costs and time frame can be quantified.  In many cases, it is easier to remove this stigma than shareholders of Caveat Emptor stocks might think, and it is nearly always worth a look.

More information regarding the differences between a Stop Sign and Skull and Crossbones Stock Can Be found on OTCMarkets.com here.

What is an OTCMarkets Current Information Legal Opinion?

In order for a Pink Sheet company to be marked “pink current” on OTCMarkets.com, a securities attorney must issue a legal opinion that states the following:

Based on the examination and inquiry set forth above, I am of the opinion that the Information:

(a) constitutes “adequate current public information’” concerning the common stock of the Company quoted on the OTC Markets (“Securities”) and the Company itself, and “is available within the meaning of Rule 144(c)(2) under the Securities Act;

(b) includes all of the information that a broker-dealer would be required to obtain from the Company to publish a quotation for the Securities under Rule 15c2-11 under the Securities Exchange Act of 1934, as amended (“Exchange Act”);

(c) complies as to form with the OTC Markets’ Guidelines for Providing Adequate Current Information, which are located on the Internet at www.otcmarkets.com; and

(d) has been posted through the OTC Disclosure and News Service.

Matheau J. W. Stout, Esq. often represents Issuers seeking to become currently reporting on OTCMarkets.com.  The process of raising an Issuer’s status from Stop Sign, to Yield Sign, and eventually to Current Pink, involves the review and posting of not only Quarterly and Annual financials (balance sheet, profit & loss statement, and cash flow statement), but also OTCMarkets’ Information and Disclosure Statement.

Together, these documents make up the Alternate Reporting Standard and provide much the same information to Shareholders as the SEC 10-Q and 10-K forms do for SEC reporting companies.

Who is an Underwriter under the Securities Act?

The term “underwriter” as defined by Securities Act Section 2(11) means:

[A]ny person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission.  As used in this paragraph or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.


The key element in the analysis as to whether or not any Shareholder is an underwriter is whether the Shares were purchased with a view to participate in or engage in a “distribution” of the Issuer’s securities.  Distribution is not defined by the Securities Act , but is essentially synonymous with “public offering.”