Keep Up to Date

Check back regularly to stay informed of key securities law related matters, as well as news from our legal offices. 

SEC Implements Rules for JOBS Act -- Permitting Advertising for Private Offerings

July 10, 2013.  The SEC has adopted rules to permit advertising in private placements of securities.


In April 2012, Congress passed the Jumpstart our Business Startups (JOBS) Act and directed the SEC to adopt rules permitting general solicitation and advertising in private offerings of securities by July 2, 2012.  While the SEC failed in their initial requirement, on July 10, 2013 the SEC finally took action to remove the ban on general solicitation and advertising in connection with the private placement of securities under Rule 506 of Regulation D and resales of securities under Rule 144A.  These new rules will have significant positive impact for our clients, particularly in connection with private placements of securities.  The new rules will go into effect 60 days after publication in the Federal Register.

In addition to the adoption of the rules relating to general solicitation and advertising, the SEC adopted provisions for Rule 506 offerings prohibiting felons and other bad actors who have securities law and related law violations from participating in Rule 506 offerings, all as required by Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)..

OTCQX and OTCQB Now Considered "Established Public Markets"

May 16, 2013.  The Securities and Exchange Commission (SEC) updated their Compliance and Disclosure Interpretations confirming that the OTCQX® and OTCQB® marketplaces are now considered “established public markets” for purposes of establishing a public market price when registering securities for resale in equity line financings. As a result, companies may use their OTCQX or OTCQB marketplace designation to complete an equity line financing registration statement, and may rely on quotes published on the OTC Markets SEC-registered Alternative Trading System, OTC Link® ATS, to establish a public market price when raising capital.


The SEC’s decision comes after a decade of changes and improvements in technology, transparency and regulation in our marketplaces, and marks an important development for SEC reporting companies. OTCQX and OTCQB companies no longer need to have a quote on FINRA’s OTC Bulletin Board to complete an equity line financing registration statement. The SEC does not consider the OTC Pink® marketplace an established public market for these purposes.

SEC will not oppose court hearing on Proxy access

September 7, 2011.  The U.S. Securities and Exchange Commission will not challenge an appeals court decision striking down the agency's rule to make it easier for shareholders to nominate directors to corporate boards.

The announcement, made late on Tuesday by SEC Chairman Mary Schapiro, marks a major blow to investor advocacy groups who had championed the so-called "proxy access" rule.

It comes more than a month after the U.S. Court of Appeals for the District of Columbia Circuit rejected the rule, saying the SEC had failed to properly weigh the economic consequences of the rule. The defeat marked the first successful legal challenge to a provision in last year's Dodd-Frank financial overhaul law.

In a statement, Schapiro said the SEC has no plans to seek a rehearing before the appeals court or a Supreme Court review. But she said she remains "committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards."

The SEC rule would have required companies to include a shareholder candidate on corporate ballots known as "proxies" provided that the nominating shareholders held at least 3 percent of the voting power in the corporate stock for three years.

Schapiro had pushed for a rule on proxy access, saying it would give long-term shareholders greater voice by making it easier for them to nominate directors to the boards of the companies they own.

The U.S. Chamber of Commerce and the Business Roundtable, which filed the lawsuit challenging the rule, feared it would give minority shareholders too much power and could have cost companies millions of dollars in contested board elections.

On July 22, the three-judge panel sided with the business groups. Judge Douglas Ginsburg, who wrote the opinion for the court, said the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments," and "contradicted itself," among other things.

Cornish F. Hitchcock, an attorney who has represented the Council of Institutional Investors on this issue, said he was disappointed by the agency's decision.

"There are answers to the concerns raised by the court, and we hope that the commission will promptly seek public comment on those issues," he said.

With the SEC now having ruled out any legal options for challenging the court's decision, its only recourse is to essentially start the rule-making process over again or drop the rule.

Schapiro said on Tuesday that while she still supports the rule, she also wants to "carefully consider and learn from" the court's rejection of it.

"I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties," she said.

Eugene Scalia, a partner at Gibson, Dunn & Crutcher who argued the case for the business groups, lauded the SEC's decision on Tuesday.

"The commission has chosen the right course by accepting the court's ruling and resolving to learn from the court's decision," he said, adding that he hopes other regulators will pay attention to this as well.

Although the future of the more uniform proxy access plan for all public companies now remains in doubt, a separate companion piece of regulation approved by the SEC that allows shareholders on an individual company-by-company basis to propose their own proxy access regimes is still in play.

The companion rule, which was not challenged by the business groups, has been on hold by the SEC pending the court action. On Tuesday, the SEC said it expects the court's decision to be completed on Sept. 13, and it will announce the effective date of the rule shortly thereafter.

Pink OTC Markets changes company name to OTC Markets Group

January 20, 2011.  Pink OTC Markets has announced that they have changed their corporate name to OTC Markets Group to more properly reflect the markets which they manage.  OTC Markets Group is not only responsible for the pink sheet market, but also has the OTC over-the-counter bulletin board and their more prestigious OTCQX and OTCQX Premier.  Cutler Law Group is an attorney "designated advisor" (DAD) for the OTC Markets Group and consequently can assist you with your application to the OTCQX or OTCQX premier.

Cost Basis Disclosure for Transfer Agents

January 1, 2011In 2008 the Federal Government created the Emergency Economic Stabilization Act.  A provision of the act mandates that all equity securities bought after January 1, 2011 will be required to maintain, pass-through and report all cost basis on all transactions.  The brokerage industry has maintained this information on a voluntary basis.  It was up to the investor, however, to report the correct cost basis for individual sales of equity securities.

Effective January 1, 2011, each Company issuer and the transfer agent will be required to maintain all tax lot cost basis information for any transfer of shares that occur after January 1, 2011.  In general, transfer agents will require more information from companies.  For any new issuances completed after January 1st, transfer agents will require the following additional information: cost basis per lot, and the date the money changed hands or services were rendered.  If the shares are for services rendered, you will have to place a value on those services at the point when the shares are issued.  The transfer agents will maintain this per lot cost basis in the shareholder’s account.  When a transfer occurs, we must pass the information through to an applicable person, via a transfer statement.

If a transfer agent receives an applicable transfer request and the cost basis is not included, they are required to make one request for the information.  If it still is not provided, transfer agents will code the transaction as “uncovered”.  The IRS will be tracking both covered and uncovered transactions.  The shareholder has the right to choose which tax lot’s cost basis to use, especially in the case of book entry shares, but if the holder does not specify, the FIFO (first in, first out) method will be used.  If the shareholder opts to choose a different tax lot, the transfer agent must be notified by settlement date – which, in the case of private transfers, is the date the transfer is made on the books of the issuer.  If a certificate is presented, it, alone, is evidence of the correct tax lot to use for the report.

Two situations, in particular, bear additional attention: the gifting of shares and inheritance.  If a tax lot is not specified and no cost basis is presented, we must assume that the shares are gifted.  In a case such as this, the tax lot of the donor is used in combination with the fair market value on the day the shares are transferred.  This, then, becomes the cost basis that we will maintain and pass-through to a recipient.


In the case of inheritance shares that are transferred, the estate representative must inform the agent of the cost basis, per lot, of presented shares. The representative must also notify the agent of the proportional share per recipient.  If the proportional share per recipient and cost basis allocation is not provided, the agent will use the FIFO method and allocate an equal proportion per lot to each recipient.  Remember, that the agent must send one request, first, if the information is not provided with the transfer request.  If the information is not received within 15 days, the transaction will be coded as “uncovered”.  However, 15 days is too late to wait and be provided the information before completing the transfer. 


One additional situation is the occurrence of a corporate action.  Corporate actions require adjustments of the cost bases for each share of stock proportional to the split, distribution, etc.  Starting in January of 2011, each Issuing Company will be required to produce an internally generated number applicable and unique to each corporate action that reflects either the adjustment per new share or the cost basis percentage of older shares, so that proportional adjustments, per that specific corporate action, can be performed on the shares presented for transfer.  Failure to provide the unique Corporate Action Number will result in a rejection of the transfer request.  The Corporate Action Number will be required by FINRA prior to approval of your corporate action request applications.

FINRA Rule change filing requirements for Corporate Actions

September 27, 2010.  A new FINRA Rule, 6490, requires issuers of non-exchange listed equities and debt securities to provide timely notice to FINRA of certain corporate actions. These corporate actions include distributions of cash or securities such as dividends, stock splits, reverse stock splits and other actions, including name changes and rights and subscription offerings. The new Rule became effective on September 27, 2010 and codifies the Securities Exchange Act Rule 10b-17. The Rule requires issuers to complete and file a document with FINRA at least 10 business days prior to the record date of the corporate action. FINRA approval must be received prior to the corporate action. The new Rule also permits FINRA to request additional documents and, on a case-by-case basis, conduct detailed reviews of such submissions and delay a request to announce a corporate action. The detailed review will be triggered if FINRA Operations believes that any of five factors outlined in Rule 6490 exist:

  • FINRA believes the forms are not complete, accurate or were filed without the appropriate authority;
  • The issuer is not current with its reporting obligations;
  • FINRA has actual knowledge that parties related to the corporate action are the subject of pending or settled regulatory action or are under investigation by a regulatory body or are pending criminal action related to fraud or securities law violations;
  • FINRA has actual knowledge that persons related to the action may potentially be involved in fraudulent activities related to the securities market or may pose a threat to public investors;
  • There is significant uncertainty in the settlement and clearance process for the security.

There are considerable fines for issuers that fail to comply with the new Rule. The filing fee and fines that may be assessed are:

  • Timely Rule 10b-17 Notification 10 business days before the Action - filing fee $200
  • Late filing, but filing at least 5 calendar days before the Action - $1,000
  • Late filing, but filing at least 1 business day before the Action - $2,000
  • Filing on or after the Action date - $5,000.

Change to Accredited Investor Definition

July 21, 2010  While numerous other changes were proposed, the final changes to the definition of accredited investor incorporated into the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) signed by President Obama on July 21, 2010 were comparatively modest.  In essence, there are two key changes related to the accredited investor definition: (1) as it relates to natural persons, the $1,000,000 net worth standard is to be calculated excluding the value of the primary residence of the natural person, and (2) while the historic definition of accredited investor has not changed much since 1982, the Dodd-Frank Act enables the SEC to review the definition again within the next four years and requires it to do so thereafter and make appropriate changes without going back to Congress.  As a consequence, we can anticipate further changes to the definition of accredited investor in coming years.


We believe this change will have substantial implications for private placements as it will materially and adversely reduce the number of persons who would qualify as "accredited investors."

SEC to Act on Risk Disclosures

July 9, 2010.  The Securities and Exchange Commission will act quickly to revise corporate risk disclosure requirements and also consider more sweeping recommendations on executive compensation disclosures and easy-to-read corporate filings, SEC Chairman Mary Shapiro said Friday.

The SEC also is looking at trading activities such as hedging, shorting, arbitrage and certain types of market orders, to ensure that all investors have access to a highly complex and technologically sophisticated trading market, Ms. Schapiro said in the text of prepared remarks. SEC staffers now are re-evaluating all corporate filing forms and disclosure requirements, asking whether the information that is being sought is "still relevant," Ms. Schapiro said.


"After this review, I expect the staff will present individual recommendations that we can act on quickly, such as revising the risk disclosure requirements," Ms. Schapiro said in the text of her speech to the Society of Corporate Secretaries and Governance Professionals.


SEC staff "also will likely present more sweeping recommendations that will take more time, such as possibly changing filing formats so that basic information can be more easily digested by investors and updated by companies," she said.


The SEC will be conducting inquiries into how corporations disclose their executive compensation policies, as directed by a financial overhaul bill that is expected to be signed into law this summer.


"These are areas that we recognize are quite complex, and we expect to be well-served by public comments," Ms. Schapiro said of executive compensation disclosures.


The SEC will be taking incremental rule-making steps in the areas of corporate disclosures and shareholder voting while also looking at the big picture of how investors interact with corporate boards.


Next week, the commission is slated to vote on a "concept release" that will study the mechanics of shareholder voting, sometimes called "proxy plumbing." The idea is to open a dialogue about how the proxy voting system can be made more accurate and transparent.


Ms. Schapiro said the commission will take a particular look at proxy advisers in this area. "We will be looking at communications and shareholder participation, and we will be looking at the role of proxy advisers, among other subjects," she said.


The financial overhaul bill also gives the SEC a host of new responsibilities and tools for enforcing securities laws, among them new authority over the exotic financial products called derivatives, hedge funds and credit-rating agencies.


Working with the Commodity Futures Trading Commission on derivatives rules, the SEC will be writing rules that address "capital and margin requirements, mandatory clearing, the operation of execution facilities and data repositories, and reporting and recordkeeping obligations," Ms. Schapiro said.


The SEC will continue working with the major trading exchanges on new rules to ensure a "level playing field" for all investors in a technologically sophisticated and fragmented market, she said.



Global Accounting Standards

February 24, 2010.  The Securities and Exchange Commission today voted to issue a statement that lays out its position regarding global accounting standards and makes clear that the Commission continues to believe that a single set of high-quality globally accepted accounting standards would benefit U.S investors.  Click here for more information.


Short Selling Restrictions

February 24, 2010.  The Securities and Exchange Commission today adopted a new rule to place certain restrictions on short selling when a stock is experiencing significant downward price pressure. The measure is intended to promote market stability and preserve investor confidence.  Click here for more information.

SEC Rule 144 Revisions

December 17, 2007.  The Securities and Exchange Commission has adopted major revisions to Rule 144.  This has direct impact upon virtually all existing Cutler Law Group clients as it (i) substantially changes the holding periods for shares in most cases, (ii) seriously impedes the ability of shell and former shell corporations to release shares under Rule 144 and (iii) changes the landscape for convertible securities.  To see how these changes apply to you and yous situation please contact the attorneys at Cutler Law Group.  The full text of the SEC's release is available below:

SEC Release on Rule 144 Revisions
SEC Release 33-8869 Rule 144 revisions.p[...]
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