SOME FINRA QUESTIONS FOR 15c2-11 - FINRA has recently decided to make it very difficult for any company that has cleared an S-1 registration statement with the SEC and desires to get a symbol from FINRA. It is now especially difficult for a company with limited sales, which FINRA looks at as a “shell” company and therefore they are requiring far more information than ever before, thus making receiving a symbol and trading the company stock “over the counter” much harder and more time consuming.
Below are a series of comments and questions that FINRA will likely come back to the broker after the filing of the 15c2-11, which will require both the company officers and the broker to answer. The more of these questions are answered in the first filing of the Form 15c2-11, the fewer comments will come back. Each question must be taken very seriously and answered in full. Missing any part of an answer will simply result in additional comments and more time. However, even if every question is answered, the FINRA examiner will probably come back asking the same question as though they did not read the material and the comments below are just some of the comments that they have come back with. There may be many more, depend on the Company. Some answers must come from the broker and some from the Company. HOWEVER, THE COMMENTS ARE ALWAYS DIRECTED TO THE BROKER THAT FILES THE 15c2-11, NOT TO THE COMPANY.
Note that some of the comments below are answers to previous comments that a broker might have received. This is to show that FINRA was not satisfied with the first answer. The number before each paragraph is simply to help identify that paragraph and B means the question is answered by the broker and BC stands means that both the broker and the Company will participate in answering the comments. ---------------------------------------------------------------------------------------
1. (B)Confirm that _________ (the broker) understands the requirements of SEC Regulation M and FINRA filing requirements under Rule 5110 and Notice to Members 88-101 with regard to this S-1 offering.
--------- 2. (BC)A detailed explanation of the relationship between the Issuer, ____ and _______ (the broker) (How did the Company learn of and contact the broker. Does any relationship exist.) --------- 3. (C) Details surrounding the Issuer’s offerings. Your answer should include, but not be limited to, who solicited investors, how the solicitor knew them, and how many individuals were solicited including those that did not purchase. In addition, provide copies of the executed subscription agreements, and respective checks not provided. (Make sure that this is complete.) --------- 4. (C) A current shareholder list of the Issuer, generated by the transfer agent, that indicates the following items: (1) the name and address of the shareholder, (2) the number of shares held, (3) the date shares were acquired, (4) whether the shares are restricted, control, or free-trading, and (5) the total shares restricted or free trading. (Note: Most of the information mentioned above will be on the shareholder list provided by the Company Transfer Agent. The date of purchase may not be on such a list.) -------- 5. (C) The identity of the individuals who are officers, directors and principal shareholders of the corporation on the shareholder list of the Issuer. (Note: Most shareholder list supplied by the Company’s Transfer will not show officers and directors and thus cannot comply with demand. The company perhaps supply the shareholder list with the officers and directors entered by the Company.) ---------- 6 (C) Describe all relationships and affiliations among and between the shareholders and the Issuer, its predecessors, its present and prior officers and directors, and other shareholders. -------- 7. (C) We reviewed your response to comment 5 of our February 26, 2012 letter, the copies of the executed subscription agreements an checks provided with your Form 211 application appears to be incomplete. Provide the executed subscriptions agreements and check for the following shareholders. (Make sure that there is a stock purchase agreement and check for every shareholder.) -------- 8. (C) A written statement from the Issuer confirming that shares of the Issuer are not included in the Registration Statement are restricted and cannot be resold pursuant to Rule 144 until the conditions of Rule 144(1)(2) have been met. --------- 9. (C) Is the Issuer working with any consultants or public relations firms? If so, provide compensation exchanged (to date and future, dates of service, services provided and future expected services. --------- 10 (B) Has your firm entered into agreements with the Issuer, its shareholders, affiliates or any entity representing the Issuer? If so provide a copy of such agreements. --------- 11. (C and attorney) The issuer’s February 28, 2012, Form 10-K indicates that the Issuer has minimal operations, minimal revenue, and $_____ in assets consisting solely of cash. Given this, it appears to the staff that the Issuer’s operations and assets are nominal as described in SEC Release No 33-8587, and therefore, the Issuer’s SEC filings should be amended to indicate the Issuer is a “shell” company. (Note: Under this comment, FINRA has made many companies amend their filings and where they checked the box on the filing that they are “not a shell”, re-file all of their document with the SEC checking the “shell” box. Usually the proper letter from the corporate attorney will answer this comment. VentureVest Capital Corporation can assist if desired) --------- 12. (C) Has the issuer entered into any discussions or negotiations concerning potential merger or acquisition candidates? If so, describe the discussions and provide any related documentation. --------- 13. (CB) We reviewed your response to comment 4 or our March 4, 2012, letter. Provide a detailed description of the steps your firm has taken, to verify that no arrangements or understanding exists between any of the 4 individuals and 2 entities who own 67% of the free trading shares including copies of any documents used. (Directed to the broker) --------- 14. (C and attorney) Pursuant to FINNRA Rule 6530, quotations on the OTCBB are limited to the securities of issuers that are required to file and are current in their reports filed with the SEC or other appropriate regulatory authorities. In its last Form 10-K, he issuer stated that it has 33 shareholders. Therefore, it appears the Issuer’s duty of file reports under Section 15(d) of the Securities Exchange Act of 1934 has been suspended and its securities are not eligible for quotation on the OTCBB. (FINRA will demand that the Company file an 8-A which will make the Company subject to all of the proxy rules. This comment will usually come back after all other comments have been answered. But it will come.) -------- 15. (C) More details surrounding the Issuer’s agreement with ________ . Your answer should include, but not limited to, how the parties were introduced, the name of the person who initiated contact, the date of the contact(s), the method(s)s of contact, the names of all individuals who were party to meetings, discussions or agreements, and the dates(S) and a description of these events. -------- 16. (B) It appears of the 24,450,400 free trading shares, 19,382,831 of these shares are held by only 3 individuals and 2 entities. This equates to a concentration of 79% of the free trading shares being held by 5 shareholders. Explain what type of market your firm expects to develop given the current share distribution. (This comment is to put the broker in a spot to attempt to describe how they intend to make a market. Just to make it much harder on the broker and discuriage them from filling 15c2-11s.) -------- 17. (B) Refer to the Appendix of the Securities and Exchange Commission Release No. 34-41110. Specifically, review #3, (Concentration of ownership of the majority of outstanding, freely tradable stock. The Appendix states, If the broker-dealer discovers at any stage of the review process any red flags in the issuer information(whether the issuer is a reporting or non-reporting company), it cannot publish a quote unless and until those red flags are reasonably addressed”. Describe how you have addressed the red flag in proceeding with submitting the 211 Application. (Again, directed to the broker to make it more difficult. The comment will come, usually after all other questions have been answered.) -------- 18. (B) A written statement that your firm has the Form 10-K filed February 4, 2012, in its possession. (Directed to broker regarding the last failing of the Company.)