Legal

Spirited Debate on General Solicitation

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With the Securities and Exchange Commission scheduled on Aug. 22 to roll out rules allowing general solicitation for Rule 506 offerings under Regulation D, the National Small Business Association (NSBA) made a late-inning plea to steer away from imposing a new and complex “regulatory regime” on issuers. The letter, submitted on Aug. 2 as part of the commission’s request for comments related to the JOBS Act provisions, attempts to rebut arguments calling for SEC to hold issuers to a high standard when verifying whether investors in such an offering are in fact accredited investors. Under Title II of the Act, Congress did away with the ban on general solicitation in Rule 506 offerings, provided issuers take “reasonable steps” – as determined by the commission – to verify that only accredited investors participate.

Legal

SEC Sanctions, Sues China Yingxia Players

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Two years after the CEO of China Yingxia International Inc. (CYXI) was sentenced to death in China, company affiliates and promoters are being sanctioned by the Securities and Exchange Commission for wrongdoing including illegal issuances of stock. Nutraceutical maker China Yingxia went public in the U.S. via a 2006 reverse merger. The company raised $10.73 million in a 2007 common stock PIPE placed with investors including Endurance Partners, Guerilla Capital, JMG Capital, and Heller Capital. China Yingxia was a Florida corporation headquartered in Harbin, China with what the SEC calls "purported” operations in China. The SEC has announced separate settlements with consultant James Fuld, Jr., consultant and communications representative Peter Dong Zhou, unregistered broker Steve Mazur, and Peter Siris and his Guerrilla Capital and Hua Mei 21st Century entities.

Legal
GEOI

GeoResources Warrant Holders Could Miss Merger Gold

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The impending merger of GeoResources (GEOI) with Halcon Resources Corp. could generate huge returns for risk arbitrageurs, but warrant holders from a 2008 PIPE may not fair so well. After the two Houston-based energy explorers announced Halcon’s acquisition bid in April, the news was followed by the usual gnat storm of law firms announcing “investigations” or lawsuits. While GeoResources has disclosed the resolution of one such suit and said it will not affect the merger, a less well-known legal dispute pits GeoResources against owners of warrants originally priced at $32.43. The derivative paper was issued in a June 2008 PIPE where GeoResources sold $34.5 million in stock and warrants to investors including Waterstone Capital Management, UBS O’Connor, Hudson Bay Capital, Ramius, Crestview Capital Partners, and Atoll Asset Management. The warrants featured anti-dilution provisions that required them to be repriced to lower levels and increased in number in step with future issuances, but investors have filed a lawsuit alleging that GeoResources refused to reprice some 500,000 warrants after the company issued lower priced securities in 2009 and 2011.

Legal
Emmis Communications

Zombie Shares, “Race to Bottom” at Issue in Emmis Take-Private Plan

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As Emmis Communications Corp.’s (EMMS) take-private plans await a crucial proxy vote on August 14, holders of preferred shares once worth $40 million are accusing Emmis and its founder, CEO, president and board chairman Jeffrey Smulyan of rigging a fraudulent deal that will render their stock worthless while giving Smulyan a 429% return on his own equity stake in the company. Smulyan and Emmis, who bought back many of the preferred shares, said in court documents the securities’ terms need to be changed to allow the take-private deal and thus create value for the company. Some $10 million in unpaid preferred dividends would be written off in the process. “I have no interest in paying [the dividends],” Smulyan said in a deposition. “I've never met anybody in our management team or our board of directors who has any interest in paying these people any money.”

Certain of those “people” have serious concerns about the fate of their preferred shares, according to a lawsuit filed by investors including Corre Opportunities Fund, DJD Group, and Zazove Associates.