Saturday, July 20, 2019

What's next after a Reg A+ offering?

Conducting a Regulation A+ offering may not be enough to provide for the liquidity of a company's shares.

It turns out that companies that undergo a Regulation A+ offering are not likely to list their securities on NASDAQ or NYSE.  Out of 157 Reg A+ offerings that took place from 2015 to 2018, according to WSJ and Manhattan Street Capital, only 11 companies listed on NASDAQ or NYSE.  Out of these 11, 10 are trading at below their initial offering price.

There are also fraud concerns.  Just last month the SEC filed additional charges against Longfin Corp., a company that used Reg A+ to list on NASDAQ.  Longfin listed on NASDAQ in December 2017.  Its shares rose 13 times upon the news that the company was about to acquire a cryptocurrency business.  On April 4, 2018, the SEC accused Longfin of violating securities laws because its chief executives and associates sold shares after the stock price increased.  The complaint was accompanied by a preliminary injunction freezing more than $27 million in trading proceeds.  On June 5, 2019, the SEC added fraud charges for falsifying the company's revenue and fraudulently obtaining a Reg A+ qualification and a NASDAQ listing.   The SEC's civil lawsuits against the company are currently ongoing.

Concerns over fraud and securities law violations, fueled by the Longfin case, prompted NASDAQ and NYSE to revise their listing rules to make it more difficult for smaller companies to list following a Regulation A+ offering.  On July 5, 2019, the SEC approved the new NASDAQ initial listing standards related to the minimum liquidity needed to list on any NASDAQ tier.  You can read about it here.  One of the changes requested by NASDAQ in April, that the company have a minimum operating history of two years prior to listing, was in direct response to Longfin. 

In conclusion, it seems that there will be little or no shortcuts for companies intending to trade their securities on NASDAQ or NYSE, regardless of their size, due to poor liquidity and concerns over fraudulent actions.

This article is not legal advice and was written for general informational purposes only.  It does not express anyone else's views except for the author's.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author Arina Shulga.  

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