Legal

Internal Fixation Accused of Manipulation, Misleading Reporting

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Medical implant maker Internal Fixation Systems (IFIX) allegedly delayed numerous regulatory filings as part of a scheme to manipulate the company’s stock price, according to a lawsuit filed by investors. By delaying disclosure of financings and other events, the suit claims, executives of the South Miami-based company “secured the ability to sell-off over 1 million shares of IFS stock to the detriment of IFS shareholders who were not provided with the true picture of IFS until after the stock price had plummeted from $2.30 per share in December 2011 to less than 2 cents per share in June 2012.”

Near the end of that period, the company arranged a $7.5 million equity line with Hyde Park Advisors according to a regulatory filing. (The company was founded in 2006 and became public in May 2011 through the filing of an S-1 registration statement.)

The suit, which was filed on Aug. 29 in Miami’s U.S. District Court, seeks financial compensation of unspecified amount. The investors are a group of about twenty individuals and investment entities including Bromson Investments Ltd., AACJ Properties LP, J Bones Holding LLC and KAKT Inc.

Internal Fixation has not yet replied to the suit in court.

Legal
crowdfunding

Muddy Solicitation Proposal Takes Wind Out of Crowdfunders

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Judging by the glowing proclamations that the JOBS Act would revolutionize small business capital formation, equity crowdfunding proponents were one of the most eager constituencies waiting for the Securities and Exchange Commission to write rules lifting the ban on general solicitation when conducting Rule 506 offerings under Regulation D.

The commission’s blessing to advertise the sale of unregistered securities to accredited investors was considered to be the first step in a two-step process. The next step, which could occur as early as January, is supposed to open unregistered securities sales to non-accredited investors. For the most part, however, the commission delivered a gut kick to crowdfunding aspirations when in late August it issued a proposal rather than final rules – further delaying rulemaking that was supposed to be completed in July – and then decided to put the onus on issuers to determine whether an investor is in fact accredited. The vague explanation on how issuers should conduct their investigations added some sting, too. “If you want to get capital flowing to job creators, if you’re trying to solve the problem of the funding void that exists for entrepreneurs and small businesses, then undefined bureaucracy doesn’t help,” said Sherwood Neiss, a principal of Miami-based Crowdfund Capital Advisors, a strategy and technology consulting group that works with crowdfunding platforms and investors.

Legal

SEC Forgoes Rule Making and Addresses Research Analyst Reforms under JOBS Act in FAQ

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While much of the emerging growth capital market was fixated over the past two weeks on the Securities and Exchange Commission’s vague proposals lifting the ban on public solicitation for investments in private placements, the agency issued a FAQ outlining its stance on the JOBS Act’s repeal of restrictions on sell-side research analysts’ participation in investment banking activities. While similarly paradigm-shifting in its impact on capital raising, the release of the interpretative document has received little attention outside of securities law circles. The SEC’s Division of Trading and Markets issued the FAQ in late August as an alternative to new rulemaking vis-à-vis the JOBS Act, which explicitly forbids preventing analysts from participating in capital raising meetings with investors and company management teams.  That had been the case since the Global Analyst Research Settlement agreement on sell-side research activities was adopted in 2003. The post-JOBS Act interpretation of permitted analyst conduct construes the Act’s provisions “narrowly” according to Sidley Austin’s Jim Brigagliano, a former deputy director at the SEC, in a client briefing published in late August. Brigagliano wrote that the SEC interprets the JOBS Act changes to provide that:

Investment banking personnel may play a role in arranging analyst communications with investors.

Legal

Fairfax Financial Shorting Case Tossed

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A long-running short selling suit came to an end when a judge dismissed Fairfax Financial’s (FRFHF) action against parties the insurer claimed had spread rumors about the company in an effort to profit from short selling Fairfax stock. Insurance holding company Fairfax’s shares exhibited huge numbers of fails-to-deliver for several years, leading to speculation about how such large short positions could remain open beyond the limits imposed by regulators. A New Jersey Supreme Court judge dismissed the case with respect to Morgan Keegan & Co. and Exis Capital Management on Sept. 12.