Investigations On Going Public Claims

As an Ex-SEC Enforcement Attorney, I’ve investigated the top four claims made by some of my competitors on the internet and elsewhere.

I’ve found that although these statements are not necessarily wrong, they do not give you the whole truth about going public.

Here are the claims I’ve investigated and a summary of the findings of my investigation.

Claim 1: You can go public for only $30,000 (or insert some other small sum of money).

My findings: This is just the fee for the service provider only. These claims gloss over or omit the fact that you’ll need many other service providers to go public successfully and correctly. Make sure you know all the providers you will need and all of their fees to you get an accurate estimate of the true total cost to go public.

Claim 2: Go Public so you can easily access and raise capital. They'll even help you raise money.

My findings: Going public can help you raise money. But unless you have significant revenues and profits and several other elements Broker/Dealer firms who raise money for companies require, you will have to raise money from people you know. Going Public can help and in fact has helped many of my clients raise money. I also recommend that you investigate claims that your potential service provider knows people who will raise money for you or invest in your company after you pay them a fee to take you public. I don’t do business that way.

Claim 3: You can raise money by getting your stock up and trading at a good price and then selling your company’s stock into the market.

My findings: This is totally false. You cannot sell your stock into the market. You can only sell directly to investors yourself or through stock brokers. The market is only for investors after you sell them your stock. It is not a place you can raise money by selling your stock directly into the market through a broker or otherwise.

Claim 4: There's a simple, 100% guaranteed way and get $xxx (insert millions of dollars) in financing by having someone take you public and arrange an equity line of credit for you. You'll have all the money you could ever need.

My findings: This kind of funding comes with big strings attached. If you can’t meet the market price and market trading volume requirements of Equity Lenders, you won’t be able to draw this funding. You’ll have a line of credit, but you can’t use it.

So now, what is the Whole Truth about Going Public?

The Real Cost of Going Public and Staying Public Half Truth Number 1:

We’ll take you public for $30,000 [or insert some other small sum of money.]

The problem with these price quotes is that going public service providers who give them to you often fail to disclose all the costs you will have to Go Public and to Stay Public thereafter.

Here’s the whole truth about who you will have to pay to Go Public:

1. SEC Attorney
2. PCAOB Auditor
3. Accounting Consultant if you cannot prepare SEC quality finanical statements yourself [PCAOB Auditors don’t prepare financial statements, only audit them]
4. EDGAR Filing Service
5. SEC filing fee
6. State Blue Sky filing fees
7. Market Maker
8. Transfer Agent
9. DTC Clearance – without this your shareholders cannot deposit their stock in a brokerage account and will be very unhappy with you

So when someone gives you a quote to Go Public, make sure you get a price for all of the above items.

Here’s a couple of other things you must ask the person giving you a quote for the price of going public if you want to get the whole truth:

1. I need a full private placement memorandum to raise money. Will you prepare this for me and if so, how much will it cost? If not, who will prepare that and how much will it cost?

2. If I have securities law questions about issues other than the SEC registration statement, can you answer these questions for me? If not, who will I ask and what will they charge me?

3. Remember, going public is just the start of the process, not the end. You have continuing SEC filing obligations and other compliance issues after you go public and get your Ticker Symbol So you need to ask: After I’m public, who will help me with all of my SEC compliance issues: Required SEC filings such as 10-K’s, 10-Q’s, 8-K’s and the like? Will you do that for me and how much will it cost? If not, who will do that and what will it cost? And what if I have other securities law or general business legal questions? Can you answer these questions for me? If not, who will answer those and how much will it cost?

When you are comparing going public service providers on the internet or elsewhere, make sure you do an apples-to-apples comparison.

All you need to do is Contact Me: I’ll give you all this information and answer all these questions. You’ll get “The Whole Truth about Going Public” from me.

Going Public and Raising Money Half Truth Number 2:

We’ll help you Go Public so that you can access and raise capital. We’ll even help you raise money.

DON’T MAKE A BIG MISTAKE: Many people looking to go public think that they will automatically be able to raise money because they read all over the internet and elsewhere that going public allows their company to raise money and access the U.S. capital markets. This is only half of the truth. Going public and having access to capital markets does not mean that your company will actually be able to raise capital after going public.

You see it all over the internet. “Take your company public and Raise Money.” “Go public so you can access the capital markets.” What you don’t hear is the rest of the story: Your company must have the fundamentals necessary not just to access but to actually raise the capital you want after you go public.

Having access to something is not the same as actually being able to get the thing to which you have access. Having access to the capital markets is not the same as being able raise the capital to which you have access. And Going Public is not the same thing as raising money. You can go public and not be able to raise a dime.

What are these serious-money investors or FINRA broker/dealers looking for? Four fundamentals:

1. Good Experienced Management
2. A Proven Business Plan
3. A History of Revenues and Profits: A company with more than $10 million in annual revenues and $2 million in annual profits seems to be the cut off for most FINRA broker/dealers
4. The Ability to Grow Your Business with Additional Capital: The ability to double revenues and profits year-over-year using the capital raised for you

You’ll hear the same argument about a reverse merger with a public shell. Buy a shell, do a reverse and you’re public and raising money.

The whole truth is: Whether you go public directly or through a reverse merger with a public shell, if you lack these fundamentals, no matter what you are told by someone else, I’m telling you the truth: You will not raise any money from serious-money investors or FINRA broker/dealers unless your company has all of the fundamentals set forth above.

If you are a start up or early stage company visiting this website, I urge you not to be misled by what you hear and read. Do not believe that by going public money will magically rain down upon them from the sky. That’s what I call “Field of Dreams” thinking. If you build it, they will come. “If I go public, I will automatically be able to raise money.” It’s just not true.

Here are some of the specific things that you might be told:

1. We have a database of thousands of potential investors. After we take you public, we’ll refer you to all of these investors to raise money.

a. WHAT YOU SHOULD ASK: Give me the names of your clients that have paid you to go public that you have referred to this large database that have actually raised money.
b. And a word of caution: If their clients have actually raised money, make sure they had comparable revenues and profits to your company. If the referral was making $2 million a year and raised money and you are a start up, that is not a comparable referral. If you are a start up, ask for start up companies they referred that actually raised money.

2. We’ll take you on roadshows to help you raise money after we take you public.

a. WHAT YOU SHOULD ASK:

i. Give me the names of firms that you will take me to on these roadshows.
ii. Give me the names of your clients that have paid you to go public that you have taken on these roadshows that have actually raised money.

3. We’ll get IR firms to start a big stock promotion campaign for your stock. Your stock price will take off and you’ll be able to raise lots of money.

a. WHAT YOU SHOULD ASK:

i. Read the next Half Truth Number 3 on not being able to raise money by selling your stock directly into the market. Ask: Since I can’t sell my stock directly into the market to raise money, how does this IR campaign help anyone but your promoters and your friends who own my stock to make money by selling the stock you guys own into the market. That doesn’t get me any money, right?
ii. If you are told that this will generate a lot of leads from investors you can sell your stock to directly, re-read Question 1 above.

4. We get lots of Market Makers on your stock. Your stock price will take off and you’ll be able to raise lots of money.

a. WHAT YOU SHOULD ASK: You have read my E-Book and know that Market Makers do nothing to promote your stock, raise your stock price or help you raise money. So you know what you are being told just isn’t accurate. Ask for the names of their market makers and call their market makers up and ask them if they can do what these people are telling you they can do.

Further Caution about Going Public to Raise Money

Remember that securities laws prohibit people from receiving commissions, finders fees or other similar transaction based compensation from you for helping you raise money unless they are FINRA Registered Broker/Dealers. Read more about Paying People to Help You Raise Money.

Of course, many of my clients tell me they have the contacts themselves who will invest, but these contacts will not invest unless they become a public company. For them, a GoPublicDirect transaction makes sense because it’s the easiest way to meet these potential investors needs. In that sense, Going Public Direct does actually help you raise money.

Others of my clients have reasons to go public other that just to raise money. For them, going public even if they cannot immediately raise money makes business sense and we have helped many of them realize their dream. These reasons include:

  • Going Public in the U.S. Capital Markets Increases The Value of Your Company and Your Personal Wealth
  • Going Public in the U.S. Capital Markets Increases the Prestige and Standing of Your Company
  • Going Public in the U.S. Capital Markets Help Your Grow Your Company and Increase its Value by Facilitating the Acquisition of other Companies
  • Going Public Can Help You Attract, Retain and Motivate Management and Employees

These reasons are discussed greater detail in the free E-Book available on the website, which I encourage you to download and read.

All you need to do is Contact Me: I’ll give you all this information and answer all these questions. You’ll get “The Whole Truth about Going Public” from me.

Go Public to Raise Money Half Truth Number 3:

You can Raise Money By Getting Your Stock Up and Trading at a Good Price and then Selling Your Company’s Stock into the Market.

Many people looking to go public think that they will automatically be able to raise money after going public because they believe that if they go public and get a ticker symbol, then get their stock trading, they can sell their company’s stock directly into the market and raise money. This is only half true. You can sell your company’s stock to raise money after you go public. The federal securities laws prohibit a company from selling its stock directly into the market after the company is trading. The market is only for trades by people who already own your stock, not for you to sell your company’s stock to raise money directly.

So the whole truth is: You just cannot sell it directly into the market. You can only sell it to people you already know privately. Only after you sell stock to investors can your investors sell their stock into the market.

All those transactions in your stock you see after you are public, do they mean that the Company is raising money? Absolutely not. All those transactions are one person who already owns your stock – not your company – selling his or her stock in your company to someone else. Where does the money from the stock sale go? To your company? No, to the shareholder who sold your stock. You don’t raise a dime from all of these sales in the market.

The story I hear usually goes like this: I’ll use your Go Public Direct Program to go public and get a ticker symbol. If I get a symbol, then I can hire investor relations firms to promote my company. I’ve got a great story. My company’s stock price will certainly rise. Then I’ll be able to raise a lot of money.

I then ask, “How?” The answer usually is, “Well, I’ve got a good market price and decent volume for my stock, so my company will raise money by just selling our stock into the market.”

When I tell people they cannot do that, they are amazed. But it’s true. The federal securities laws don’t allow this. They allow your company to raise money by selling directly to investors you know through personal contact and not by taking your company’s stock down to some broker and selling it into the market, even if you have a ticker symbol, a great stock price and good volume. You simply cannot do that.

“What about IPO’s?” people ask. IPO’s are not sold directly into the market. IPO’s are sold by brokers directly to their customers who they know, not directly into the market.

Bottom Line: Stock Market sales are only for Investors who already own your stock. They are not for sale of your company’s shares directly. They are not allowed as a means of raising money for your company.

All you need to do is Contact Me: I’ll give you all this information and answer all these questions. You’ll get “The Whole Truth about Going Public” from me.

Go Public to Raise Money Half Truth Number 4:

We’ll take you public and get you $XXX [insert millions of dollars] in financing by arranging an equity line of credit for you. You’ll have all the money you could ever need.

You can get the same thing from me if you want. I can introduce you to all of the players in the equity line of financing business. And you can get an equity line for millions of dollars from them.

What’s the catch? If it sounds too good to be true, it usually is.

Do you know what an equity line of credit is? It’s not free money. With an equity line, a financing source agrees to buy free trading stock that you register with the SEC from you at a discount to the trading price.

But you can’t make them buy your stock and give you whatever millions of dollars you ask for whenever you ask for it. No!

The amount you can ask for is limited by your trading volume. No trading volume, no money.

Further, these equity financing sources do not have altruistic motives. What do they do? They sell your stock to get their money back.

What happens when they sell your stock? Your stock price goes down.

So assuming you maintain trading volume, which is no sure thing, you have to give the equity financing source more and more stock to get the same amount of money.

Before you know it, you’ve given your company away.

I’m not against equity lines of credit. You can get one through sources I’ll refer you to. I just want to make sure you understand fully what you are getting yourself into in one of the equity credit line deals. OK?

All you need to do is Contact Me: I’ll give you all this information and answer all these questions. You’ll get “The Whole Truth about Going Public” from me.

Bonus Going Public Half Truth:

We’ll sell you a real, true public shell or even make you your own personal SEC Reporting Shell – all OTCBB/NASDAQ ready – for [insert some small dollar amount].

Yes, I’ve seen these offers too. Too good to believe? Trading shells are hundreds of thousands of dollars. SEC lawyers will tell you the SEC won’t let you take a shell company public. So what’s going on here?

Here’s my advice: BEWARE OF THE VIRGIN FORM 10 SHELL TRAP!

What these people are trying to make for you or sell to you is called a Virgin Form 10 Shell. It’s an SEC reporting shell company. But beware: It is not a trading company. It cannot get a ticker symbol and be made a trading company without filing a full SEC 1933 Act registration statement, the same thing I do in a Go Public Direct transaction without a shell.

So why do you need a Virgin Form 10 Shell to go public? In almost every case, you don’t.

Why are they being promoted to you? You could conclude it’s just a way to make more money from you or to lead you to believe you are getting something that you really aren’t.

You might call and tell me, “I can get a real, true public shell for $15,000, or less.” So what! You want a ticker symbol. This kind of shell does you no good. It won’t help you get a ticker symbol, right? Right!

And what the heck is “OTCBB/NASDAQ Ready?” Ready if you only file a full SEC registration statement such as that we use in the Go Public Direct transactions for our clients. “Ready” is really a half truth.

Many people looking to go public through public shell look at a Virgin Form 10 Shell as an attractive alternative to an OTCBB/OTCQB or Pink Sheet Trading Shell. However, a careful analysis of how a Virgin Form 10 Shell Reverse Merger really works discloses several flaws in pursuing this Go Public alternative.

I continue to advocate Go Public Direct transactions as the preferred option for private companies desiring to go public in most situations, for simple reasons such as lower cost as well as additional transparency and credibility by becoming an SEC reporting company and additional comfort and security by going through the SEC review process.

Still, although I continue to be amazed that many companies opt for buying shells to go public, I am confounded by why people would even consider a Virgin Form 10 shell, except in very limited circumstances.

Here’s what I hear from people who ask me about Virgin Form 10 Shells, followed by the truth:

I need a public shell to go public.

Truth: You don’t need a public shell, reverse merger, reverse IPO or similar transaction to Go Public. You can go public direct without any kind of shell, Virgin Form 10 Shells included.

I don’t have two years of financial statements so I need an aged Virgin Form 10 Shell (or some other kind of shell) to go public.

Truth: You don’t need two years of operating history or financial statements to go public. You can go Public Direct even if you have just started your business and even though you have generated no revenues.

Virgin Form 10 Shells are much cheaper than OTCBB or Pink Sheet Trading Shells, and Virgin Form 10 Shells are legitimate because they have an SEC filing and are an SEC reporting company.

Truth: Although these statements are true, they aren’t quite the whole truth. The whole truth is: So what? Virgin Form 10 Shells don’t have a ticker symbol. They aren’t trading.

Before you buy a Virgin Form 10 Shell, remember this: You still have all the work and expense of a Go Public Direct transaction to get a ticker symbol in addition to the expense of buying the Form 10 Shell and completing the merger. You cannot get a ticker symbol after you merge with a Virgin Form 10 shell without the same filing on Form S-1 with the SEC as we do in a Go Public Direct Transaction.Even worse, your company is forever tainted by the “shell” status, which under recently adopted SEC rules makes it much more difficult for you to raise money because the shares people buy from you in a private placement are much more difficult to resell

Caveat: There is one limited situation in which a Form 10 shell does have value: If a reverse merger transaction involves a Form 10 Shell brought to the table by a legitimate funding source that requires a company be an SEC reporting company before making an investment. That investment is made at the time of the closing of the reverse merger with their Form 10 shell, then in this limited situation, the Form 10 shell has value. It satisfies the funding source’s pre-investment requirement. The company obtains funding that it wouldn’t have obtained unless it merged with their Form 10 shell.

But for most people, why not skip the cost and aggravation and just do a Go Public Direct transaction?

All you need to do is Contact Me: I’ll give you all this information and answer all these questions. You’ll get “The Whole Truth about Going Public” from me.

My full service SEC Law Firm and my world class team of service providers will design and implement the going public solution that is right for you.

As an Ex-SEC Enforcement Attorney, I’ll make sure you stay out of trouble by avoiding potential costly securities law violations in the going public process that could overwhelm you and your company.

Schedule a No-Risk Free Consultation with me right now and I’ll review your going public goals and objectives and give you a Roadmap that shows you the best path for your success.