Legal
SEC

Crowd Calamity? Repeal of General Solicitation Ban Ushers in New Era of Something

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Yesterday’s long-anticipated repeal of the ban on public advertising of private securities offerings either ushers in a new era of transparent, information-rich, digitally-greased, and crowd-vetted capital markets, or it is a leap into the abyss that will pervert the most trusted capital markets in the world into a carnival midway of investment hustlers, crowd madness panderers and common thieves. That seems to be the consensus, or lack thereof, of regulators and growth capital professionals surveyed in the wake of the SEC’s action to implement the mandate set by Congress a year ago when it passed the JOBS Act. On July 10, the Securities and Exchange Commission held an open meeting regarding its nine-month old proposal to repeal the ban on the advertising and general solicitation of Regulation D securities offerings. Although the rule was ultimately adopted, concerns regarding investor protection were raised by two commissioners, Elisse Walter and Luis Aguilar. Seeking to blunt criticism that removing the general solicitation ban would “open the floodgates of fraud,” the commission staff proposed additional amendments to Rule 506 that would formalize the verification process for accredited investors. The commission also voted to publish for public comment a proposal to impose several additional reporting requirements on Form D:

 require issuers and investors to provide additional information on Form D
eliminate the ability of an issuer to use Rule 506 exemptions if it failed to file a required Form D during the prior five-year period (with certain cure provisions)
require issuers to file a Form D at least 15 days prior to engaging in any general solicitation and to file a final amendment to that Form D not later than 30 days from the end of the offering
for an initial two-year period, require issuers engaging in general solicitations under Rule 506(c) to submit their solicitation materials to the SEC on a confidential basis
impose legending requirements on any general solicitation materials
extend the advertising guidance in Rule 156 applicable to public funds to private funds.

Legal
NIR Group

NIR Head Says Good Intentions Paved Way to Wrongdoing

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Some of the very misdeeds NIR Group chief Corey Ribotsky stands accused of in the bankruptcy of his AJW funds show that he had the funds' best interest in mind, according to documents his attorneys filed in a bankruptcy case. "Indeed, the liquidators' complaint is replete with factual allegations in which the liquidators concede that defendants' conduct served to benefit the AJW funds primarily by representing the appearance of a successful fund, an thereby maintaining its continued success," the filing says. The funds imploded and, the Securities and Exchange Commission is suing Ribotsky for misleading investors, inaccurately valuing investments and conducting sham transactions to hide losses. The suit was filed in March of this year by AJW liquidators PwC Corporate Finance and Recovery in the New York State Supreme Court. The liquidators had already obtained Chapter 15 status from a U.S. District Court in February.

Legal

Court Says JBI Cooked Books before PIPE Offerings

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Serial PIPE issuer JBI Inc. (JBII) and founder John Bordynuik massively inflated the value of assets and then used fraudulent financials to obtain over $8 million from PIPE investors, according to a judgment obtained by the Securities and Exchange Commission. The commission filed the case this January in a Boston U.S. District Court. JBI raised over $40 million since 2009 in eight PIPE transactions, including transactions in 2009 when the company was known as 310 Holdings (TRTN). JBI formed from the acquisition of shell 310 Holdings in 2009. Investors in the PIPEs were almost never disclosed.

Legal
IMGGQ

Imaging3 Lied about FDA Disapproval, SEC Says

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Imaging3 (IMGGQ) management concealed negative FDA information from investors, according to a lawsuit filed by the Securities and Exchange Commission. In a November 2010 conference call, the SEC alleges, the company's CEO Dean Janes  avoided discussing serious FDA criticisms that were later disclosed in 2011 by an investor who obtained a copy of the Oct. 22, 2010 FDA letter and posted it on his blog. Imaging3 is a Burbank, Calif.-based medical imaging device maker that filed for Chapter 11 bankruptcy protection in September 2012. The conference call took place on Nov.