Reverse Merger Bootcamp l Toxic Reverse Mergers

Over the last eight years, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) have overhauled the rules and regulations applicable to reverse merger transactions. Not only have the SEC and FINRA jumped on the bandwagon to eliminate them, but, as will be explained,Depository Trust Company and national securities exchanges have joined

in their efforts.  Among the SEC’s efforts to stem microcap fraud is a campaign to eliminate dormant shell companies to prevent them from being used in reverse merger transactions.

FINRA Issues $8 Million Fine for Anti-Money Laundering Compliance Failures

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined New York-based Brown Brothers Harriman & Co. (BBH) $8 million for substantial anti-money laundering compliance failures including, among other related violations, its failure to have an adequate anti-money laundering program in place to monitor and detect suspicious penny stock transactions. BBH also failed to sufficiently investigate potentially suspicious penny stock activity brought to the firm’s attention and did not fulfill its Suspicious Activity Report (SAR) filing requirements. In addition, BBH did not have an adequate supervisory system to prevent the distribution of unregistered securities. BBH’s former Global AML Compliance Officer Harold Crawford was also fined $25,000 and suspended for one month.

Criminal Charges in Corporate Hijackings on the Rise

The Justice Department has increasingly pursued criminal charges against corporate hijackers and their conspirators for illegal takeovers of publicly traded shell companies. In  many instances, a securities attorney or transfer agent have been charged in connection with the schemes.  Recent examples include the criminal convictions ofIrwin Brook and Lawrence S. Hartman.  Broock  a Florida securities lawyer. Hartman recently pled guilty to a charge of conspiracy to commit mail and wire fraud in connection with a corporate hijacking and shell trafficking fraud scheme. Hartman faces up to 20 years’ imprisonment and a maximum fine of $250,000.

SEC Explains Merger & Acquisiton Brokers

On February 4, 2014, the Securities and Exchange Commission (the “SEC”) released a No Action Letter  in response to a request from the American Bar Association Task Force on Private Placement Brokers.  The SEC’s response confirmed the circumstances under which Merger and Acquisition Brokers are exempt from the SEC’s broker-dealer registration provisions.

The SEC’s response provides useful information for both small and large business owners seeking to sell their businesses.

Diane Dalmy Announces She Was the Victim of Form S-1 Identity Theft

Diane D. Dalmy, a securities attorney, announced today that she is the victim of identity theft in connection with the unauthorized use of her name on 20 Form S-1 registration statements filed with the Securities and Exchange Commission.  The 20 issuers in question  were charged by the Securities and Exchange  Commission with filing misleading S-1 registration statements for twenty  mining companies. Last week, the SEC filed administrative stop order proceedings. Today, Ms. Dalmy has stated that the filings were made without her knowledge and the use of her name was unauthorized.

SEC Suspends Amogear, Inc.

On February 10, 2014, the Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of Amogear Inc. (“Amogear”), of Boston, Massachusetts, at 8:30 a.m. EST on February 10, 2014, and terminating at 11:59 p.m.EST on February 24, 2014.

The SEC suspended trading in the securities of Amogear because it has recently been the subject of spam e-mails touting the company’s shares and because of potentially manipulative conduct in the trading of the company’s shares.