I don't care what it's called, BOTH ARE TOXIC!
The debt is being converted at sub-penny .0025, the $$$ are NOT GOING TO THE COMPANY TO BUY ASSETS! The cash is being paid to the note holders! SCAMMING INVESTORS!
Aged Convertible Debt
This is one of today’s regulatory hot topics, and for good reason. In the past year, regulators have uncovered several cases where “aged debt” was fabricated and used to sell unregistered “free-trading” shares into the marketplace. The scam essentially amounts to printing free money, and is harmful not only to innocent investors but also to the integrity of the stock markets.
While aged debt conversions in and of themselves are not necessarily wrong, we simply want to caution our clients that aged debt conversions can be red flagged in our industry by regulators, depository institutions, and compliance officers. Issuers should proceed with caution and only under the advice of quality legal counsel specializing in securities law.
Tips and Useful Information about Aged Convertible Debt:
Keep in mind that debt starts to “age” under Rule 144 when it can be converted into common stock. If a convertible feature is built into the original debt instrument, such as a convertible note, the debt is said to be “aging”. If the original debt instrument is not convertible, it is not “aging”.
It goes without saying that all debt should be carefully recorded on your books from inception, and copies of any notes, assignments, and conversions should be kept on file.
Just because an attorney is willing to write a legal opinion about convertible debt, doesn’t mean the conversion or subsequent resale is proper. It is best to have the issuer’s retained legal counsel review the facts careful to form an opinion on whether or not the provisions of Rule 144 have been met. Outside counsel may not be aware of all the facts and circumstances surrounding the debt origination or conversion.
If you do opt for outside counsel to write a legal opinion, ensure the attorney is qualified and knowledgeable in this area. A simple way to differentiate between a quality securities attorney and a letter-printing droid is to gauge how much due diligence he performs prior to writing the opinion. An opinion is only worth the work and expertise put into it. If he doesn’t ask you for any supporting paperwork – yikes.
If you are contacted by a party interested in purchasing aged convertible debt, carefully consider your options and consult with your legal counsel. Not all that glitters is gold.
Legal Disclaimer
The information contained herein is general in nature, is not legal advice, and should not be treated as such. You must not rely on the information here as an alternative to legal advice from your attorney or other professional legal services provider.
