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One Junior Employee in Shared Office Space Does not Qualify for Reg A Offering

 

A federal court has ordered rescission, including $3.5 Million in disgorgement and $3.2 Million in penalties, with respect to an offering that falsely claimed to satisfy Regulation A.  According to the SEC, the sponsors lied to the SEC by claiming a U.S.-based principal place of business when, in fact, the firm was run entirely outside of the U.S., and its sole U.S. contact was one employee in shared office space.  The SEC also accuses the sponsor of lying to NASDAQ by inflating its float with non-qualifying insider transactions.  A court previously ordered $26 Million in penalties for unlawful sales of insider securities that did not qualify under Rule 144.

Lying to the regulators in public filings to qualify for exemptions will lead to big trouble.  Ordering rescission is the Big Kahuna of enforcement penalties because it involves returning all proceeds with interest in addition to fines and usually an ongoing cease and desist order.  Act deliberately when filing that Form D or making those Rule 144 representations.