Ironridge Quits 3(a)(10) Deals and Settles SEC Action for $4.4M

Ironridge Global Partners has settled a two-year-old enforcement action with the Securities and Exchange Commission over its use of a previously obscure cause of the bankruptcy code to provide equity financing to distressed microcaps. Without admitting guilt, the fund managers agreed to one count of failing to register as a broker-dealer, and will pay $4.4 million in disgorgement penalties.

In June 2015 the SEC sued Ironridge for Section 15(a) and 20(b) violations aimed at the large volume of deals Ironridge had closed over the past three years using the so-called Section 3(a)(10) exemption. The regulator’s lawsuit was centered on a finance scheme pioneered by Ironridge that converted unpaid debt and claims into immediately registered stock which bypassed the usual requirement of SEC review before trading. The SEC claimed the fund manager was acting as an unregistered underwriter.

In 2015, more than a half-dozen microcap finance firms used the exemption, a part of the federal bankruptcy code intended to help bankrupt companies settle claims with creditors, to buy trade claims from creditors of microcap issuers and then get court approval to convert them to equity through a fairness hearing. The issuers would then pay firms like Ironridge in unrestricted stock to settle the claims, as provided for by the exemption, which could be traded immediately in the open market.

Since the SEC litigation against Ironridge began, 3(a)(10) deals have nearly ceased to exist, even though there have been no new rules or laws created to prohibit the practice. CLICK HEADLINE FOR MORE>>

Gregg Jaclin

Jaclin Indicted in ‘Shell Factory’ Scheme

Veteran microcap deal lawyer Gregg Jaclin was indicted May 18 on eight counts of criminal charges related to securities fraud and obstruction of justice, according to federal court records filed in Northern California by the Department of Justice.