Get the whole truth about a Pink Sheet Listing or a Pink Sheet Shell from Ex-SEC Enforcement Attorney Michael T. Williams, Esq.
Pink Sheet Market: I can take you there directly without a merger with a Pink Sheet Shell if you qualify.
Do You Qualify?
Getting a Pink Sheet Ticker Symbol on the requires two things:
- You have to have free trading stock.
- You have to have a FINRA issue you a Ticker Symbol. The SEC does not issue ticker symbols.
The single biggest impediment to getting a Pink Sheet Ticker Symbol is free trading stock. You are not filing a registration statement with the SEC so you don’t automatically have free trading stock. Instead, the stock you have previously sold to your shareholders must be free trading. This takes time. Under SEC Rule 144, described in detail elsewhere on this site, your shareholders do not have free trading stock unless they have held their stock for one full year.
But having free trading stock isn’t enough. You also have to meet the other FINRA requirements described above, specifically:
- Enough free trading shares
- Enough non-affiliated shareholders
- No market concentration
Even then it is still more difficult to clear FINRA for a Pink Sheet only application than for an application for the OTCBB or a higher exchange. FINRA will give great scrutiny to the following:
- How your offered and sold all of your stock and whether that process was done in full compliance with SEC statutes, rules and regulations.
- Whether or not your company is a shell company as defined by the SEC.
So it is critical that you pay great attention to the furnishing FINRA the following:
- All documents related to the offering of your securities from the inception of your company, including copies of checks and subscription agreement
- Proof that your company is engaged and in the future continues to engage in a valid business activity and is not a shell company.
- A shareholder list generated by a Transfer Agent clearly showing free trading stock.
- An opinion of SEC counsel on the free trading status of your stock so indicated on your Transfer Agent’s shareholder list.
The Form 211 for a Pink Sheet application is much longer than for an application for the OTCBB or higher exchange. In general, the disclosure items are similar to those in an SEC registration statement.
The financial statements, however, do not have to be audited. That said, you cannot just print out your Quickbooks balance sheet and income statements. The financial statements must look like those in an SEC filing, just not audited by a PCAOB member firm. Accounting firms that prepare financial statement to send the PCAOB auditors for SEC registration statements are qualified to prepare financial statements for a Pink Sheet application.
Pink Sheet Shells
I definitely do not like pink sheet shells.
Yet, I am constantly told by people who visit this site and contact me that they are going to buy a Pink Sheet Shell because they can avoid SEC Reporting and the expense of Sarbanes-Oxley Act compliance. That’s true. However, although that’s a benefit, there are significant detriments to buying a Pink Sheet Shell due to recent SEC and FINRA rule changes.
Here are three important questions to ask the person trying to sell you a Pink Sheet Shell:
Pink Sheet Shell Question #1
When will my current shareholders and I be able to sell our stock on the Pink Sheet Market after the merger with the Pink Sheet Shell?
The correct answer is: Never.
That’s right: Never.
Recent SEC changes in Rules 144 and 145 make your stock and that of your stockholders totally, completely, absolutely illiquid and un-sellable on the Pink Sheets. Oh, you can fix this. But to do so, you have to become an SEC reporting company. But wasn’t that what you were trying to avoid in the first place? OK, you’ve avoided it, but you and your stockholders can never, ever sell their shares on the Pink Sheets.
Pink Sheet Shell Question #2
I plan to raise money in a private placement offering after the Pink Sheet Shell Merger closes. When will investors in this offering be able to sell their stock on the Pink Sheet Market?
The correct answer is: Never.
That’s right: Never.
The same recent SEC changes in Rules 144 and 145 make your investors’ stock totally, completely, absolutely illiquid and unsellable on the Pink Sheets. Oh, you can fix this. But to do so, you have to become an SEC reporting company. But wasn’t that what you were trying to avoid in the first place? OK, you’ve avoided it, but you and your stockholders can never, ever sell their shares on the Pink Sheets.
Do you think you can sell your stock if you tell investors they will never, ever be able to resell their stock on the Pink Sheets? You can’t hide this fact either, as to do so will subject you to securities fraud lawsuits, which you will almost certainly lose if you don’t make the disclosure.
Pink Sheet Shell Question #3
After the merger, I may want to:
- Move up to the OTCBB
- Change the Company’s Name
- Reverse Split the stock.
Can I do that?
The answer is: Yes, but only if you have all of the following information:
- A full corporate history for the shell including all material facts of the corporate action being requested (Start on the original date of incorporation and include all the corporate changes that have occurred until present day, including, but not limited to, changes of control, reverse mergers, name changes, etc).
- Back to the formation of the shell: A list of all corporate officers prior to the current officers appointments. This list should include the date of appointment and resignation for each officer on this list and should be accompanied by the executed back up documentation (i.e. signed resignation letters, Board of Directors resolutions with officer appointments included, etc.)
- Back to the formation of the shell: Provide a regression diagram, from the shareholder list provided, that traces the shares from the current shareholder to their issuance by the shell. This list should indicate the name and address of the shareholder or transferor, the date of original issuance or transfer, the provision under the Federal Securities Laws or exemption that the Issuer relied upon, and the consideration paid to the issuer or transferor. Additionally, provide a detailed explanation of the Shell’s nature of business at the time of original share issuance and each subsequent issuance of shares since inception.
- Back to the formation of the shell: Details surrounding the shell’s offering(s). 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.
If you do not get this information from the shell promoter at closing, or if it is not available, you are screwed if you want to do any of the corporate actions listed above. That means:
- No move to the OTCBB
- No name change
- No reverse split
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.
- Go Public Direct and save hundreds of thousands of dollars while avoiding the inherent risks and problems with public shells that could overwhelm you and your company.
- If a Reverse Merger with a Public Shell is right for you, we’ll take your company public that way.
- We can also get you a Pink Sheet Listing if you qualify.
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.