SEC Issues Only 21st Stop Order In Two Decades
June 17, 2015
According to the Securities and Exchange Commission ("SEC"), since 1995 it has issued only 20 Stop Orders against registration statements (See list), which works out to about one per year over the past two decades. As such, when the SEC recently announced it had issued its 21st Stop Order, it was a somewhat rare event. Given the dramatic impact of such a step and the opportunity it affords to industry practitioners to learn from such miscues, the BrokeAndBroker.com Blog offers this analysis.
Case In Point
On May 27, 2014, and as amended thereafter, Orion Global Corp.(a Florida corporation that was dissolved on November 20, 2014) filed a Form S-1 registration statement for 3,000,000 common shares in a $36,000 public offering. READ the S-1 registration statements.
SIDE BAR: Section 8(d) of the 1933 Securities Act provides:
If it appears to the Commission at any time that the registration statement includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, the Commission may, after notice by personal service or the sending of confirmed telegraphic notice, and after opportunity for hearing (at a time fixed by the Commission) within fifteen days after such notice by personal service or the sending of such telegraphic notice, issue a stop order suspending the effectiveness of the registration statement. When such statement has been amended in accordance with such stop order the Commission shall so declare and thereupon the stop order shall cease to be effective.
In response to Orion Global's S-1 filing, the SEC found that the public interest required the institution of administrative proceedings to determine whether a Stop Order should be issued to suspend the registration's effectiveness. In anticipation of Stop Order proceedings and without admitting or denying the findings but consenting to the entry of an Order, Orion Global Corp submitted an Offer of Settlement, which the SEC accepted. In the Matter of the Registration Statement of Orion Global Corp., Respondent (Order Instituting Administrative Proceedings, Making Findings, and Issuing Stop Order, '33 Act Rel. 9769; Admin. Proc. 3-16532 / May 11, 2014).
Untruthful
The SEC Order asserts that Orion's registration statement included untrue statements of material facts and omitted to state material facts necessary to make the statements contained therein not misleading. Among the examples cited in the registration statement:
Blank Check
- Although presented as a "storage facility business" managed by Orion's sole officer and Director; the SEC Order asserts that the company "has no business of its own, and is an undisclosed "blank check company" and the sole officer/Director was not presently employed in the industry cited.
- The sole officer/Director was presented as the only parent/promoter of the company and the individual who will continue to control the operations after the offering; however, the SEC Order asserts the the company was purportedly "controlled and/or promoted by an undisclosed control person, parent and/or promoter."
- Orion is presented as being "is entirely dependent on the efforts of our sole officer and director," and the company is depicted as "operating out of our sole director and officer's office located at his residence;" the SEC Order asserts that the individual had not engaged in any business activities for the company other than opening a corporate bank account.
- The Board of Directors is characterized as staffed solely by the sole officer/Director, who is presented as involved in the day-to-day operations to the extent of some 10 - 25 hours per week; however, the SEC Order asserts that the individual had "no involvement in, and spent no time on, Respondent's operations."
- The sole officer/Director was purportedly responsible to market and sell the subject securities based upon the belief by the company that he had sufficient knowledge and experience in financial and business matters to capably evaluate the merits and risks of the investments; however, the SEC Order asserts that the individual lacked knowledge of the subject shares, did not plan to sell them, and did not have the knowledge/experience ascribed to him in the Registration Statement.
- The sole officer/Director was characterized as having made a capital contribution on April 4, 2014; however, the SEC Order asserts that no such contribution was made and the individual had not received any shares.
- The registration statement states that it had been signed by the sole officer/Director on the company's behalf; however, the SEC Order asserts that such signing did not occur.