American Green Inc (ERBB)

[1vman]

*****FINRA MAY BE GETTING_MORE_AGGRESSIVE_IN_REGULATION_OF_MICROCAPS

WILL THIS IMPACT AGs AQUISITION AND/OR REVERSE MERGER WITH CANX

When Michael Siegel, CEO of EcoloCap Solutions Inc. (ECOS) , signed an agreement last year to sell convertible notes to Asher Enterprises Inc., he knew the money could dilute his shareholders, but he had no idea that months later the agreement would keep his company from completing a 1-for-2,000 reverse share split.

But a Sept. 16 letter from the Financial Industry Regulatory Authority says that the agreement between EcoloCap and microcap financier Asher and a 2013 SEC enforcement action against Asher president Curt Kramer caused Finra to deny the fairly common corporate action.


The denial could be a sign that Finra is now using more discretion and doing more due diligence when considering even the most common corporate actions of microcap companies.

A securities lawyer who has had at least 10 such applications before Finra in the last three months says the securities industry regulator is moving in a more deliberate fashion.

"It doesn't make any difference whether it was a name change, a ticker symbol or reverse or forward splits. Finra is looking at these things more deeply," the attorney said. "They are looking at who the officers are, who the directors are. It doesn't matter what kind of application is being considered. Companies that have solid balance sheets won't have problems, but companies that are shaky are going to be looked at closely."

Finra is responsible for regulating broker-dealers and transfer agents and for tracking trades that take place on domestic securities exchanges and OTC Markets Group Inc.'s (OTCM) platforms, where a substantial number of microcap stocks are listed.

Finra spokeswoman Nancy Condon said the time it takes the regulator to process applications is a reflection of whether the companies provide complete information. She declined to comment on whether Finra was performing more due diligence or whether it had adopted new or different standards for review or enforcement.

In its second-quarter financial statement, EcoloCap reported no revenue and losses of $622,042 for the first half of the year, and zero cash on hand at the end of the quarter. The company also had $1.88 million in notes outstanding.

Prior to submitting its reverse-split application to Finra, EcoloCap had processed the change with the state of Nevada, where the company is registered, and obtained shareholders' permission to reduce its number of shares.

Finra stated in its letter denying the reverse split that it had "actual knowledge" that the company or people connected to the company or its proposed corporate action "are the subject of a pending, adjudicated or settled regulatory action or investigation by a federal, state or foreign regulatory agency, or a self-regulatory organization; or a civil or criminal action related to fraud or securities laws violations."

But then the SEC approved Finra Rule 6490, which required companies to notify Finra of actions such as reverse splits, dividends or name changes. It also gave Finra power to conduct reviews when such actions were proposed and to refuse to allow the actions when it received incomplete paperwork or when it saw indications of potential fraud.

Finra used its authority under Rule 6490 to deny EcoloCap's reverse split, even though the company had already amended its articles of incorporation on file with the state of Nevada, making the reverse split effective under state law, Anthony wrote.

"Clearly it is problematic when state and federal rules and regulations cause a conflicting result, leaving a board of directors, shareholders and the investing public in a state of flux," she stated. "What is the capitalization of ECOS? In accordance with the state law, the company has approximately 3.4 million shares issued and outstanding; however, according to the over-the-counter marketplace, the company has approximately 6.8 billion shares outstanding. Legally it seems the company has 3.4 million shares of stock outstanding at a trading price of $.0001 and that Finra's refusal to process relates solely to a refusal to re-price the stock as a result of the reverse split and not a broader refusal to recognize the validity of the share reduction itself."




https://www.thestreet.com/story/12938749/1/finra-may-be-getting-more-aggressive-in-regulation-of-microcaps.html