I remain determined in my quest for the major stock
exchanges to consider some alterations to the reverse merger "seasoning"
requirements instituted in November 2011. As we know, these restrictions
were added primarily in response to allegations of fraud in a number of Chinese
companies that went public through reverse mergers.
The rules add a speed bump, requiring companies merging
with reporting shell companies to trade in the over the counter markets for at
least one full fiscal year. You can bypass the restriction with a $40
million public offering. This placed a giant skewer through a large number
of deals in which a company merged with a shell, completed a PIPE, then moved
immediately to a public offering of $15 or $20 million and trading on the
Nasdaq or NYSE Amex. Very few reverse merging companies can attract a $40
million public offering.
In the year plus since the rules passed, many fewer
reverse mergers. Companies that are on the over-the-counter markets struggle in
a decimated PIPE market and no ability to sell shares through short form
registration. Underwriters are not thrilled to do a public offering that
doesn't "uplist" the company to a major exchange. So these companies have had
tremendous difficulty raising money. And this in a frothy market about to hit
I suggest that the exchanges consider lowering the
threshold on the Amex and Nasdaq to $10 or maybe $15 million. The investor
protections are the same in both types of offerings. The exchanges retain
substantial discretion if they feel a shell or its promoters seem in any way
shady. In all other listing requirements the standards for the exchanges below
the NYSE "big board" are lower except here. This change makes sense and retains
all the protections of a larger public offering. I'm just saying.
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 &
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