| Traps |
The securities
laws contain a "trap for the unwary" or two. |
| |
This underscores
the importance of having good representation and asking questions. |
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Here are a few of
them. We cannot say that this list is exhaustive. |
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Registration of the Company and its Principals
as Brokers
|
Some states
require the company and/or its principals to register as brokers and/or
dealers if they are going to sell stock in the offering. . |
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In small
offerings, the company may sell stock without a broker. In small
offerings, the officers and directors participate in selling the stock. |
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Remedy: check with
the states you are selling in to make sure you have complied. |
|
Finders' Fees I
|
I believe
most of the companies I have met know people who would be delighted to
help them sell stock. |
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Most of the
companies I know would like to pay these people finders' fees. |
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However, paying
finders' fees may violate state and federal law if these people are not
registered as brokers. |
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Check to be sure. |
|
Finders' Fees II
|
Companies are
often approached by consultants who want to help them find underwriters
for a fee. |
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These fees may be
counted against the underwriter by the NASD. |
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The NASD
limits the maximum compensation the underwriter can take. |
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If the
consultant's fee is too large, the underwriter's compensation is
jeopardized. |
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As an
underwriter, I have turned down good deals because my profits were
limited by consultant's fees. |
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The Intrastate Offering
|
Some have done an
intrastate offering to get around the SEC rules only to discover that
they have to wait a full year after their last intrastate sale before
making any other sales. The company is left high and dry for new money
for a year. |
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No Audited Financials
|
Some
companies want to go public but cant produce two years of audited
financials. |
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Your
accountant can look at the books for the last two years. However, he
can't count your inventory as of two years ago. |
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Start
auditing your books on day one. |
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Prepare for
the offering years in advance. We can show you how. |
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SEC Accounting Rules
|
Few promoters
realize that the SEC accounting rules only let the company show the
actual cost of any property contributed by the promoters. |
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For example,
suppose promoters bought land for $1 million that is now worth $10
million and they contribute the land to the company. |
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The promoters can
take $10 million in stock. However, they can only show $1 million in
value on the books of the company for SEC reporting purposes. |
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I heard of one
deal where the promoters spent a fortune in legal and accounting fees --
paid to blue chip firms -- only to find the deal had to be canceled
because nobody knew of this rule. |
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Raising the Bar
|
The
securities regulators have a habit of raising the standards for
compliance without notifying you. You think you are in compliance but
you find you are not. |
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The only
solution is to be ahead of them and do more than is required. |
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More . . .
|
As I think of
them, I'll post them. E-mail me to be notified. mailto:lux.investor@gmail.com
Feel free to suggest them to me also.
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