Little People Trading

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Hijacking The Public Shell

Corporate hijackings, also known as corporate identity theft, is a growing method used by fraudsters to acquire control of publicly traded shell companies. It is relatively easy to locate information about a public company using Edgar, OTC Markets filings, Secretary of State websites and corporate filings, company websites, and business and other directories. Using these sources, fraudsters are able to determine a public company’s corporate status including whether it is active or inactive, its ticker symbol, present and former officers and directors as well as its contact information.

Using this information hijackers can determine if an entity’s corporate status has lapsed and when a company becomes delinquent in its SEC, OTC Markets and Secretary of State corporate filings, making it an easy target for a corporate hijacking. Using easily obtained public information, fraudsters have literally hijacked hundreds of companies and/or their stock symbols.

Upon identifying the hijacking target, fraudsters may engage in some or all of the following in order to obtain control of the entity:

? obtain forms from the relevant Secretary of State website and pay a nominal fee to reinstate the dormant entity and change its officers, directors and contact information to that of the hijacker or its nominees;

? file a state custodianship or receivership action where the entity is formed using pleadings that falsely state among other things, that a custodian or receiver selected by the hijackers will take actions to benefit the then existing shareholders;

? change the hijacked entity’s corporate name and/ or create a new entity with the same or a similar name, often in a different jurisdiction;

? reverse split, restructure, reorganize and/or change the jurisdiction of the hijacked entity by merging it into the newly formed entity to conceal its true identity;

? issue shares to the hijackers, receiver or custodian and nominees, which substantially dilute the then shareholders;

? sell the hijacked entity to a private company seeking to be publicly traded for use in a reverse merger transaction with the proceeds of the sale being used to compensate the hijacker and the custodian or receiver;

? notify the Financial Industry Regulatory Authority (“FINRA”), the company’s transfer agent and CUSIP Services of the reverse merger, new management and/or reorganization of the entity; and

? commence making filings on the OTC Market or Edgar.

Private companies considering reverse merger transactions, as well as investors should look for these common red flags often found in corporate hijackings of public shell companies:

? changes in management of the shell company while it is inactive or shortly after its corporate charter is reinstated;

? state receivership or custodianship proceedings followed by reverse stock splits and/or large stock issuances which transfer shareholder voting control;

? recent transfers of stock between entities or persons who received shares for services rendered in receivership or custodianship proceedings;

? periods of inactivity in the Secretary of State corporate records of the public shell company;

? reinstatement of an administratively dissolved corporate entity with the Secretary of State where the public shell company is domiciled;

? changes in the state of domicile of the public shell company;

? multiple corporations domiciled in the same state or different states with the same or similar names, which are controlled by the same person or persons;

? lawyers and transfer agent principals and their family members and/or employees having voting control or beneficial stock positions of the public shell company;

? changes of control or corporate name changes at times when the shell company does not have an active business; and

? involvement of persons or entities in multiple shell company or reverse merger transactions.

For the legitimate shareholders and management, it is timely and costly to regain control of a hijacked entity. The hijacked entities are often used in pump and dump schemes by the hijackers causing the private company purchasers to become embroiled in SEC investigations and the public entity to be the subject of SEC trading suspensions and its securities subject to DTC Chills and/or global locks.

To the extent that a private company is willing to expend the time and resources to become public it should do so the proper by way by filing a registration statement with the SEC and conducting an underwritten or direct public offering and avoid the growing risks and new requirements involving reverse merger issuers.

For further information about this article, please contact an SEC attorney at [phone] or by email [e-mail]. The information herein is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates at [phone] or by email at [e-mail]. Please note that the prior results discussed herein do not guarantee similar outcomes.