My interpretation of the no-action review available for issuers is different.
No action, in this instance, means no penalty, and no enforcement action by the Commission - Providing that the company asks the SEC to review if the exemption is applicable BEFORE the fairness hearing, which I suspect MYDX did not.
In this analysis, the statute must require the entity to conclude affirmatively that the exchange is fair to the security holders participating in the exchange .19 For example, the statute must require the governmental entity to conclude that the terms and conditions of the exchange are "in the best interest of shareholders" or "fair" to shareholders, not that the exchange is "not unfair," "not unreasonable," "not prejudicial," or "not counter to the best interest of shareholders."20. Moreover, as previously discussed in footnote 7, the governmental entity must find the terms and conditions to be fair both procedurally and substantively.
If there is a question as to whether the statute authorizes the governmental entity to hold a hearing on the transaction and to approve the fairness of the exchange's terms and conditions, it may be clear from the actual practice of the authorized governmental entity. For example, in State Mutual Life Assurance Company (March 23, 1995), the Division relied on an opinion from counsel to the Division of Insurance of the Commonwealth of Massachusetts that the relevant statute authorized the Massachusetts Insurance Commissioner to make the requisite fairness determination.
If an issuer intends to rely on the Section 3(a)(10) exemption, it may want to look at prior Division no-action responses and see if the particular statute has ever been the basis for a Division no-action position. If the statute has been the basis for a favorable Division position, the issuer should consider whether the language of the statute has changed since the Division took that favorable position.
This is an earlier version of the SEC interpretation of Section 3(a)(10) applicability, which also has some clarifications, and the main precedents I mentioned to you earlier.
What people fail to realize is that the exemption is fraudulent if it does not meet all of these criteria. It is not a free pass to abuse existing shareholders via dilution of their equity position.
Now consider the nature of this debt.
On April 1, 2016, the Company entered into an agreement with a number of external public relations resources (“PR Resources”) specializing in shareholder communications and crisis communications in an effort to support the Company’s investor communications relating to its convertible debentures, nearly all of which were being converted and sold during this time period thereby causing severe pressure on the stock, as well as the implementation of a number of strategic public relations programs designed to introduce the Company’s AquaDx product line by leveraging off the water crisis in Alabama, Flint and Florida. (the “Agreement”). For the requested services, the Company was to pay a one-time payment of Two Hundred Fifty Thousand Dollar ($250,000) (the “Claim”) upon the signing of the Agreement.
On May 24, 2016, the Company and Phoenix Fund Management, LLC (“Phoenix Fund”) entered into a Claim Purchase Agreement with these PR Resources to purchase the Claim held by them. Phoenix Fund executed a Settlement Agreement whereas the Company and Phoenix Fund agreed to resolve, settle and compromise the Claim. In settlement of the Claim, the Company shall issue and deliver to Phoenix Fund shares of its common stock as requested by Phoenix Fund, periodically, at a fifty percent (50%) discount from the average closing price of the Company’s common stock for the three trading days prior to the date of issuance.
Then on June 9th 2016 this is filed in Miami-Dade court, and approved, even with the glaring discrepancy regarding the company issuing shares to settle this supposed "bona fide" debt.
Two weeks after Phoenix acquired the debt they are effecting Section 3(a)(10) to have the public pay for the debt via deeply discounted free trading shares being sold to the public, thus effectively circumventing the six month holding period required by Rule 144.
So to break it down what happened was promoters were paid to "assist" the stock during conversions. Promoters assist by luring folks to buy more stock, and are required to disclose their compensated position under Section 17(b) of the Securities Act of 1934 as amended. I have provided the precedent whereby the Commission first applied Section 17(b) to social media promotion, SEC v. Black 2000.
I have not seen a SINGLE disclosure by any of these "crisis communications specialists", has anyone?
In essence the Section 3(a)(10) exemption was hijacked so circumvent Rule 144, and the promoters were paid for promoting the stock in which discounted shares of MYDX were being sold to the public to reimburse Phoenix for paying for the promotion of MYDX.
Promoters were assisting in selling stock that was being sold for this debt owed to them.
As defined in the precedents from earlier Section 3(a)(10) exemption rulings the position of the retail shareholder must be protected when effecting a Section 3(a)(10) exemption.
1. Does this exemption adequately protect the interests of existing shareholders?
2. Is this "fair and equitable" to shareholders?
3. Does this promote the interests of shareholders?
4. Would an intelligent and honest shareholder reasonably approve of this exemption?
Examples of appropriate statutory standards in favorable
Division responses to no-action requests include
requirements that the entity determine that the transaction:
(1) "adequately protects the interests of depositors, other
creditors and shareholders" (Minowa Bancshares, Inc.,
November 26, 1990); (2) be "fair and equitable" to
shareholders (Farm Family Mutual Insurance Co., April 2,
1996); (3) promotes the "public convenience and advantage
and the interest of [the merging] institutions, their
members, stockholders and depositors" (CFX Corp., April 19,
1996); and (4) "is such that an intelligent and honest man,
a member of the class concerned and acting in respect of his
interest, might reasonably approve" (The Hongkong and
Shanghai Banking Corporation Ltd., January 23, 1991).
If I owned MYDX I would say hell no, paying for promoters with discounted shares being sold that they themselves are assisting in the sale of fails all requirements of this four prong test.
This is established SEC law. MYDX and Phoenix cannot just do what they want with the Section 3(a)(10) exemption to advance their interests.
This is but one serious matter of compliance I am finding here.