Attorney Laura Anthony Explains Form 8-K - YouTube

I am attorney Laura Anthony founding partner of Legal & Compliance, a full service corporate,

securities, and business transactions law firm.

Today is the first in a LawCast series talking about Form 8-K. On September 26, 2016, and

again on the 27th, the SEC brought enforcement actions against issuers for the failure to

file 8-K’s associated with corporate finance transactions and in particular PIPE transactions

involving the issuance of convertible debt, preferred equity, warrants and similar instruments.

Prior to the release of these two actions, I have been hearing rumors in the industry

that the SEC has issued hundreds of subpoenas to issuers relating to PIPE transactions and

in particular to determine 8-K filing deficiencies.

Although hundreds is likely an exaggeration, the SEC is certainly focusing on this space.

Back in August 2014, the SEC did a similar sweep related to 8-K filings failures associated

with 3a10 transactions.

The 8-K filing deficiency actions were a precursor to a larger SEC investigation on 3a10 transactions

themselves, which culminated in two well-known enforcement actions against active 3a10 participants,

i.e. the Ironridge companies and IBC funds, and resulted in a chill on the 3a10 activity

in the industry, as a whole.

3a10 actions continued today but the volume of transactions has dramatically reduced and,

the attention to due diligence, detail and reporting requirements has, likewise, increased.

The SEC rarely takes enforcement action, or expends time or resources on investigating

the failure to file a form 8-K. When such issues arise, it is usually in connection

with a routine review of a company’s SEC reports, or, as part of the comment and review

process associated with the filing of a registration statement.

All reports filed with the SEC are subject to SEC review and comment, and the Sarbanes-Oxley

Act requires that the SEC undertake some level of review of every reporting company at least

once every three years.

As was the case with the SEC’s investigation into 3a10 transactions, it is my belief that

the SEC is reviewing the PIPE industry as a whole, and, in particular, the process,

procedure and effects associated with convertible instruments.

The majority of these transactions involve the issuance of convertible notes, which then

convert into common stock following a holding period, in reliance on rule 144 and section

3a9 of the Securities Act of 1933.

Any convertible instrument can be used in the same manner such as preferred stock and

warrants.

The use of convertible instruments in PIPE transactions is perfectly legal and acceptable.

However, like any other aspect of the securities marketplace, it can be abused.

My belief is that the SEC is using the investigation into the failure to file 8-Ks in association

with these transactions to assist in a larger investigation into related fraud and other

violations.

If a company is failing to file an initial 8-K for the transaction, and subsequent 8-Ks

to report the issuance of securities upon a conversion, there may also be other issues

and violations.

Examples of abusive or improper activity could include the backdating of notes or the failure

to provide the funding associated with the note.

Improper undisclosed affiliations between investors and the company or its officers

and directors, manipulative trading practices, improper stock promotion, or trading on inside

information.

I am securities attorney Laura Anthony, founding partner of Legal & Compliance, and producer

of LawCast.

Should you have any questions about today’s topic, please visit SecuritiesLawBlog.com

and LawCast.com, or contact me directly.

Inquiries of a technical nature are always encouraged.