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More Developments in Proposed “Seasoning” Rules

As you know we previously reported that the Nasdaq has proposed requiring reverse merged companies to trade on the over-the-counter markets and meet other criteria for six months before being able to list on Nasdaq. The initial proposal in April said that the 6-month wait would not be required if a company was coming to Nasdaq with a firm commitment underwritten public offering. Unfortunately in an amendment to their proposal earlier this summer they summarily removed the exemption for public offerings.

In other developments, the NYSE Amex also put forth its own seasoning proposal, which is very similar to the one requested by its affiliate, the New York Stock Exchange, that we have previously reported on. It requires a one-year seasoning, but provides an exemption from seasoning if the company is coming to the Amex with a firm commitment public offering raising at least $40 million completed at the time or or following a reverse merger. Note that the NYSE and Amex proposals also exempt SPACs from listing there because of their full SEC review and underwriter due diligence. The Nasdaq proposal does not exempt SPACs.

It seems Nasdaq is ok with losing many exciting companies who happen to go public in reverse mergers to the NYSE Amex or New York Stock Exchange, even if they are raising $40 million in a public offering, by requiring the six-month seasoning regardless of the size of a subsequent public offering. This is obviously a real shame, as many exciting growth companies would like to go to Nasdaq.

The truth is that the whole thing is a shame. The problems faced by many reverse merger companies have also been faced by companies that went through full IPOs (such as Longtop Financial, which went public through Goldman Sachs and had Deloitte as their auditors). The problem is not how these companies went public, but the companies themselves. Have I said this enough?

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

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