Securities Industry Commentator by Bill Singer Esq

The Future of Finance Is in Wealth Management and Retail Trading / A look at the data shows where the industry's money is being made (Bloomberg by Jennifer Surane, Sridhar Natarajan, and Larry R Tabb)

Licensed Attorney And Disbarred Attorney Charged With Securities Fraud For Roles In Fraudulent Opinion Letter Scheme (DOJ Release)

SEC Charges Disbarred New York Attorney and Florida Attorney with Scheme to Create False Opinion Letters (SEC Release)

Energy Companies Agree to Settle Fraud Charges Stemming From Failed Nuclear Power Plant Expansion (SEC Release)

FINRA Amends Its Equity Trade Reporting Rules Relating to Timestamp Granularity (FINRA Notice to Members)

FINRA Fines and Suspends Former NYLIFE Associated Person For Impersonation (BrokeAndBroker.com Blog)

Securities Registration Requirements and SEC Rule 144 

Under the Securities Act of 1933 (the "Securities Act"), anyone seeking to sell a security must first register the offering of that security unless an exemption applies. See 15 U.S.C. § 77e.  This registration requirement protects investors by promoting disclosure of information pertinent to informed investment decisions. 

A company registering the offer of securities must complete a registration statement such as SEC Form S-1 before the securities can be listed on a national exchange and publicly traded.   SEC Form S-1 contains information pertinent to informed investment decisions, including, among other things, information on the company's business operations, the company's financial condition, and a description of the company's management.  In connection with SEC Form S-1, the company is required to file an opinion letter (the "Form S-1 Opinion Letter") from a licensed attorney regarding the legality of the securities being offered or sold pursuant to the registration statement.  A company's SEC Form S-1 and the Form S-1 Opinion Letter are available to the public on the SEC's Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR").

"Restricted securities" refers to securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer, with "affiliate" meaning a person that directly or indirectly controls, or is controlled by, or is under common control with, an issuer.  Affiliates can also include an executive officer or a director or large shareholder who is in a relationship of control with respect to the issuing company.  Restricted securities bear a legend indicating that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from such registration requirements.

Securities Act Rule 144 ("Rule 144"), codified at 17 C.F.R. § 230.144, provides a registration exemption for the resale of restricted securities.  Specifically, it permits the public resale of restricted securities if a number of conditions are met, including conditions relating to how long the securities are held, the way in which they are sold, the public information available to investors about the securities, and the amount that can be sold at any one time.  However, even if these conditions are met, the sale of restricted securities to the public is still not permitted until a transfer agent removes the "restricted" legend from the security. 

The term "transfer agent" refers to a company that keeps track of individuals and entities that own the stocks and bonds of a given company that has publicly traded securities.  Among other things, transfer agents issue and cancel certificates to reflect changes in ownership, serve as the company's intermediary for payouts, exchanges, or mailings, and handle lost, destroyed or stolen certificates.  Transfer agents also, when appropriate, remove the "restricted" legend from securities. 

A Rule 144 Seller's Representation Letter, or "Seller's Representation Letter," is a letter to a transfer agent to establish certain facts underlying a legal opinion that the securities at issue can be sold publicly pursuant to Rule 144.  The transfer agent relies on the Seller's Representation Letter in determining whether to remove the restricted legend from a security.

Over-the-Counter Securities and OTC Markets Group 

Over-the-counter ("OTC") securities are securities that are traded between two counterparties outside of a formal securities exchange.  OTC Markets Group ("OTC Markets") is a company headquartered in New York, New York that provides price and liquidity information for OTC securities.

OTC Markets requires issuers seeking to be quoted on certain tiers of OTC Markets to hire a licensed attorney to review company records and submit a letter to OTC Markets (an "OTC Markets Attorney Letter") regarding whether information publicly disclosed by the issuer is in compliance with the condition in SEC Rule 144 governing the public information available to investors about the issuer.  OTC Markets relies on the OTC Markets Attorney Letter to determine whether an issuer's security may be quoted on OTC Markets.  OTC Markets Attorney Letters are available to the public on the OTC Markets website. 

The Scheme to Defraud 

From at least in or about 2011 through at least in or about September 2018, RUBIN and CRAFT, the defendants, participated in a fraudulent scheme in which CRAFT falsely represented that he had undertaken certain legal work in connection with Seller's Representation Letters, OTC Markets Attorney Letters, and S-1 Opinion Letters, all of which enabled the relevant securities to be sold to the investing public.  In addition, in connection with the securities of certain issuers, RUBIN, the defendant, falsely represented that he was an attorney in Seller's Representation Letters and OTC Markets Attorney Letters, all of which enabled the relevant securities to be sold to the investing public.  The false representations were in letters pertaining to over a dozen companies.

[F]rom December 2015 to July 2018, Rubin, who was disbarred in 1995, continued to fraudulently practice securities law by submitting at least 128 attorney opinion letters that allowed microcap stock issuers' securities to be purchased by and sold to the investing public. The complaint alleges that Rubin signed certain letters, falsely claiming to be an attorney, and that he drafted other letters for Craft's signature. The complaint alleges that Craft signed or permitted the use of his name and signature on at least 30 letters that falsely stated he had performed substantive work to formulate the opinions in those letters

FINRA has amended its rules to require firms to report time fields in trade reports submitted to a FINRA equity trade reporting facility (or FINRA Facility) using the same timestamp granularity that they use when reporting to the Consolidated Audit Trail (CAT). Once the amendments are effective, firms that report time on CAT order execution events in increments finer than milliseconds must report to the FINRA Facilities in such finer increment- up to nanoseconds. The effective dates of the amendments, along with the schedule for publication of updated technical specifications and testing . . .

• Securities Industry Commentator
• Bill Singer