Wednesday, April 23, 2014
Just like the Administrator at the State level, the SEC sometimes issues stop orders when they don't like what they see--or don't see--in a registration statement for an offer of securities. Let's take a look: Washington D.C., April 23, 2014 — The Securities and Exchange Commission today issued a stop order to prevent a Northern California-based company from issuing stock after including false and misleading information in its amended registration statement for an initial public offering (IPO). Stop orders prevent the sale of privately held shares to the public under a registration statement that is materially misleading or deficient. If a stop order is issued, no new shares can enter the market under that registration statement until the company has corrected the deficiencies or misleading information. According to the SEC’s stop order against Comp Services Inc., its registration statement fails to disclose the identity of the control person and promoter behind the company, and falsely states that Comp Services earned revenue for providing computer services even though the company has never earned any revenue. The registration statement has been amended 10 times, most recently in December 2013. “Comp Services gave investors a false and misleading portrayal of the company as they were deciding whether or not to invest,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “This stop order ensures that Comp Services stock cannot be sold in the public markets under this misleading registration statement.” Comp Services consented to the issuance of the stop order, which also triggers the bad actor disqualifications to prohibit Comp Services from engaging or participating in any unregistered offering conducted under Rule 506 of Regulation D for a five-year period. The SEC’s investigation, which is continuing, has been conducted by Roberto Tercero and Spencer Bendell in the Los Angeles office.
Tuesday, April 1, 2014
Insurance agents selling fixed and indexed annuities have been operating in a gray area in many states for many years now. The definition of "investment adviser" under state securities law, remember, looks something like this:“Investment adviser” means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities." Right there, you can probably see how easy it would be for a state regulatory office to determine that an indexed annuity salesperson is in the business of advising others. . . as to the advisability of . . . selling securities. Therefore, he is not acting just as an insurance product salesman; he's acting as an unregistered investment adviser if he tells people to liquidate mutual funds and put the proceeds into his safe-money product. While many states wait for someone to step out of line and then handle it on a case-by-case basis, the State of Tennessee has come right out and stipulated what an insurance agent can do versus what a securities representative can do. As we see from their bulletin "Licensing and/or Registration Requirements and Permitted Activities," an "Insurance-Only Person" and a "Securities-Only Person" cannot engage in the same activities. The bulletin, at http://www.tn.gov/securities/documents/InfoPostWebREQUEST052213.pdf is something I encourage you to read regardless of your state. While you might be surprised to see what is prohibited for an "insurance-only person," you might also be surprised to see the prohibitions for those who are considered "securities-only persons." For example, a securities-only person may NOT "discuss the cost versus benefits of insurance in specific terms" and may NOT recommend specific allocations, in dollars or percentages, between insurance and securities investments. Probably more important, though, an insurance-only person may NOT discuss risks specific to the consumer's individual securities portfolio and may NOT recommend the liquidation of specific investments/securities to fund the purchase of an annuity/insurance product.