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1- 18 of 18
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Libraries:
Listing Council Decisions
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Filters:
All Years; Regulatory Authority; Discretionary Authority
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Identification Number
1719
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Discretionary Authority
Rule 5101: Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Rule 5250(a)(1): Nasdaq may request any additional information or documentation, public or non-public, deemed necessary to make a determination regarding a Company's continued listing, including, but not limited to, any material provided to or received from the Commission or Other Regulatory Authority. A Company may be denied continued listing if it fails to provide such information within a reasonable period of time or if any communication to Nasdaq contains a material misrepresentation or omits material information necessary to make the communication to Nasdaq not misleading.
Issues: Was Hearings Panel correct to delist the Company under Rule 5101 due to its alleged failure to fully investigate allegations made against it by a research firm and manipulative trading allegations made by FINRA? Was the Hearings Panel also correct to delist the Company under 5250(a) for failing to disclose the results of its internal investigation of the research firm’s allegations and for misrepresenting information about the enforcement of legal judgments against it?
Determination: Affirm the decision to suspend and delist the Company.
The allegations made against the Company by a research firm – that the Company’s operations were a sham – and by FINRA – that manipulative trading had occurred in the wake of the research firm’s report –were serious ones. The Council agreed with Staff that the investigation that the Company conducted of manipulative trading activity was incomplete and inadequate under the circumstances.
As to the FINRA allegations, the Company failed to fully investigate all of the suspect trading that FINRA identified and the investigation it did conduct was superficial and cursory. Its attempts to refute the allegations often seemed implausible.
The Company’s failure to conduct or to otherwise demonstrate that it did conduct a thorough and complete investigation of the allegations made against it indicated that the Company either did not appreciate the gravity of its circumstances it faced or it lacked the will, the resources, or the sophistication, to do what was plainly required of it. In any case, the Council agreed with Staff that the Company failed to conduct itself in a manner that comports with Nasdaq’s expectations of its listed companies.
Such concerns about the Company were only exacerbated by the Company’s failures not only to execute, but even to make material progress towards executing, its business plan. As Staff noted, the Company failed to conduct any of the proposed activities described in the Company’s filings with the Commission and in its listing application with Nasdaq. Although the Company insisted that its progress should be measured in the medium-to-long term, the Company acknowledged that it lacked the funding required to execute its business plan. The Council agreed with Staff that it is not necessarily unusual or alarming for listed companies – and particularly small companies – to encounter difficulties in executing on their business plans in their initial stages of development; however, it was alarming in this instance that the Company made no demonstrable progress in doing so even after several years and that it acknowledged it lacked the ability to do so going forward, at least in the near-term.
Additionally, the Council was troubled that the Company failed to demonstrate anything specific its current management had done to bolster its internal controls in the wake of allegations that it had permitted internal control deficiencies to linger for several years.
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Publication Date*:
11/7/2019
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Identification Number:
1719
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Identification Number
1288
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Public Interest Concern, Filing Delinquency, and Failure to Pay Fees
Rule 5101: Staff has raised public interest concerns over the degree of control the Company has over subsidiary.
Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.
Rule 5250(f): A Company is required to pay all applicable fees as described in the Rule 5900 Series.
Issue: At issue is whether the company should remain listed notwithstanding that it is delinquent in filing its annual report, failed to publicly disclose material information timely, and public interest concerns raised by Nasdaq's Staff.
Determination: Affirm the decision to suspend and delist the Company.
In light of the facts and circumstances of this matter, including but not limited to, the conduct of the Company and its board of directors with respect to the Company's independent auditor, the Company's independent counsel, and Nasdaq in the delisting proceeding, particularly including: the events giving rise to the resignation of the Company's independent auditor, which concluded that it could no longer accept the representations of the Company's Chairman and CEO, and determined that it could not continue as the Company's auditor unless he was separated from the Company; the independent auditor's finding that the Company does not appear to have an effective board with the ability to discharge its responsibilities; and evidence from the Company's independent counsel that the Company made misrepresentations to Nasdaq in its effort to remain listed; the the Listing Council finds that delisting the Company is appropriate, pursuant to Rules 5101, 5250(c)(1), and 5250(f).
The Listing Council conducts a de novo review of matters before it and, accordingly, it may consider issues not raised in the matter before the Panel or relied on by the Panel as a basis for its decision.
Rule 5101 provides Nasdaq with broad discretionary authority over the listing of securities on Nasdaq in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest. The importance of timely filing of financial statements, as required by Rule 5250(c)(1), cannot be understated. Moreover, the Listing Council notes that the Company failed to pay its annual listing fees, as required by Rule 5250(f). Taken together, the Listing Council concludes that the Company does not fully understand the obligations of a public company. Based on the facts and circumstances of this matter and for the reasons stated above, the Listing Council determined to delist the Company's shares from Nasdaq. Delisting does not bar the Company from applying to relist on Nasdaq, or another U.S. exchange. In this regard, should the Company resolve the issues that give rise to this matter it may reapply to list on Nasdaq.
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Publication Date*:
11/28/2016
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Identification Number:
1288
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Identification Number
1133
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Disclosure, Filing Delinquency, and Public Interest Concern
Rule 5101: Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Rule 5250(b)(1): Except in unusual circumstances, a Nasdaq-listed Company shall make prompt disclosure to the public through any Regulation FD compliant method (or combination of methods) of disclosure of any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions.
Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.
Issue: At issue in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that it is delinquent in filing its annual report, failed to publicly disclose material information timely, and public interest concerns have been raised based on the Company’s bankruptcy.
Determination: Affirm the decision to suspend and delist the Company.
In light of the facts and circumstances of this matter, including the Company’s failure to file its Form 10-K by its stated deadline, the Listing Council finds that delisting for failure to file its Form 10-K for the fiscal year ended December 31, 2013 is a valid basis under Rule 5250(c)(1) for delisting the Company.
The Listing Council conducts a de novo review of matters before it and, accordingly, it may consider issues not raised in the matter before the Panel or relied on by the Panel as a basis for its decision. One such issue, which was raised by Staff yet not noted as a basis for delisting in the Panel decision, is Staff’s determination that delisting the Company was warranted given it had violated Rule 5250(b)(1). Rule 5250(b)(1) states, in part, that a “Nasdaq-listed Company shall make prompt disclosure to the public through any Regulation FD compliant method (or combination of methods) of disclosure of any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions.” Staff argues that the Company violated Rule 5250(b)(1) when it failed to disclose the loss of control of a subsidiary. The record shows that, as of November 22, 2013, the Company knew that the former CEO possessed the subsidiary’s chops and had advised the Company that he would not return them. Furthermore, the Company was aware on November 27, 2013 that the former CEO had threatened the validity of the VIE structure of the Company. By the Company’s own admission, it realized on November 27, 2013 that there was a potentially serious challenge to the structure of the enterprise, yet waited until December 11, 2013 to disclose the issue. Staff believes, and the Listing Council agrees, that the Company had an obligation to disclose these issues pursuant to Rule 5250(b)(1) far sooner than when the Company ultimately disclosed the issues in December 2013. To argue that an investor would not find these developments material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions, is nonsensical.
Rule 5101 provides Nasdaq with broad discretionary authority over the listing of securities on Nasdaq in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest. The importance of timely filing of financial statements, as required by Rule 5250(c)(1), cannot be understated. Moreover, the Listing Council notes that the Company was slow, or failed altogether, to disclose material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions, as required by Rule 5250(b)(1). Taken together, the Listing Council concludes that the Company does not fully understand the obligations of a public company. Based on the facts and circumstances of this matter and for the reasons stated above, the Listing Council has determined to delist the Company’s shares from Nasdaq. Delisting does not bar the Company from applying to relist on Nasdaq, or another U.S. exchange. In this regard, should the Company resolve the issues that give rise to this matter it may reapply to list on Nasdaq.
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Publication Date*:
11/19/2014
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Identification Number:
1133
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Identification Number
1087
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Public Interest
Rule 5101: Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Issue: Should the Company be granted an extension to remain listed on Nasdaq, notwithstanding a Panel decision that affirmed Staff's determination to delist the Company based on public interest concerns Staff identified in a recent press release and subsequent Company disclosures, which include: (1) a liquidity crisis, and a related line of credit from an entity controlled by Company employees; (2) recent management turnover and the reasons for management resignations; (3) corporate structuring that precludes transfer of cash or other assets from the Company's Chinese subsidiaries to the Company; (4) the Company's past association with a stock promoter with a regulatory history, and trading activity in the Company's stock by certain brokers, significant shareholders and the former CEO?
Determination: Affirm the decision to delist the company.
Fundamental to the Company's argument is its assertion that Staff applied its own business judgment in determining to delist the Company and as such the determination, and the Panel decision, was ultra vires. This argument is without merit. There is no evidence that Staff acted outside of the scope of authority provided by either Rule 4120(a)(5) or Rule 5101. Rule 4120(a)(5) permits Nasdaq to halt a listed security when it requests information from the issuer relating to material news, its ability to meet Nasdaq listing qualification requirements, or any other information which is necessary to protect investors and the public interest. The Listing Council finds that Staff had satisfied the requirements of Rule 4120(a)(5) as a recent press release did represent material news. Moreover, there is no dispute that the disclosure raised questions concerning the Company's ability to meet Nasdaq's listing standards given the significant resignations, announcement of the retention of a restructuring adviser, and the entry into the revolving loan agreement to meet the Company's “immediate cash needs.”
Turning to the exercise of its discretionary authority under Rule 5101, the Company's determination to allow a $33 million cash balance to decrease to approximately $25,000 over the course of 14 months without a means to adequately fund the Company's operations is very concerning to Nasdaq and a valid basis to exercise its discretionary authority under Rule 5101 to delist the Company. The Listing Council agrees with Staff's position that bringing the Company to the brink of insolvency by spending down corporate assets to this level is not an ordinary event, but rather irresponsible, reckless and inconsistent with conduct expected of a Nasdaq- listed company. In addition, the Company was slow to react to its liquidity crisis, as there is adequate evidence in the record to conclude that it knew of its liquidity issues several months before it secured the related party revolving loan, in contrast to the Company's assertion that there were no other alternatives due to a lack of time. While remedial steps were taken by the Company, it is unclear that such steps will adequately address the issues that gave rise to Staff's delisting determination. The Company remains unable to assert any material control over its subsidiaries in terms of funding the Company's operations, and receives its operating capital from a revolving loan agreement with a company controlled by subsidiary executives. In addition, the lack of control of its subsidiaries presents a bevy of concerns, including questions surrounding the Company's internal controls over accounting and other U.S. federal regulatory obligations. As noted in the record, the new Company executives provided a qualified attestation to the Company's financial reports.
Addressing the Company's assertion that the delisting is not in the public interest, the Commission has long recognized that Nasdaq is vested with discretionary authority to deny an issuer's request that its securities be included in Nasdaq, and holds that Nasdaq's primary concern in making listing determinations should be the protection of prospective investors. In Tassaway, the SEC stated that “while exclusion from Nasdaq may hurt existing shareholders, the primary emphasis must be placed on the interest of prospective public investors and that this latter group is entitled to assume that the securities in [Nasdaq] meet [its] standards.” It is against this regulatory backdrop that the Listing Council finds that it was appropriate to deny continued listing to a company that (1) allowed a $33 million cash balance to decrease to approximately $25,000 over the course of 14 months without a means to adequately fund the Company's operations; (2) chose to rely on funding from employees of its Chinese subsidiaries to avoid insolvency, with no apparent consideration of other sources; (3) experienced significant management turnover; (4) has a lack of contractual arrangements with its Chinese subsidiaries that allow for the transfer of funds from China to the U.S. for business expenses.
Although the Company's ties to a stock promoter with a regulatory history and his affiliates continued during the time that the Company took the actions at issue in this matter through the initiation of the appeal to the Listing Council, it appears that the Company has taken action to sever such ties at this time. Moreover, as the Panel noted, the Company has taken some steps to resolve some of the issues that have raised Staff's concerns. Nonetheless, the Listing Council does not believe that the Company should be listed on Nasdaq at this time. The issues arising from the recent press release and Staff's subsequent investigation are very concerning, and are representative of a Company clearly not prepared for the rigors and responsibilities that are demanded of listed companies. As such, it is consistent with the discretion afforded under Rule 5101 to delist the Company to protect investors while allowing the Company to demonstrate over time its ability to act as a responsible corporate citizen.
Accordingly, the Listing Council affirms the Panel decision to deny continued listing to the Company based on the exercise of the broad discretionary authority under Rule 5101.
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Publication Date*:
8/21/2013
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Identification Number:
1087
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Identification Number
1036
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Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Issue: The company was delisted by a Hearings Panel for public interest concerns, noting that the findings of an independent report of the company’s audit committee form the basis of its determination. The report described multiple concerns, which included gradual cooperation with the investigation, false and misleading statements made by Company management to the former auditor and the investigatory team, related party dealings, likely violations of the Foreign Corrupt Practices Act, and a lack of adequate disclosure. For example, the report noted that the CFO had misrepresented the balances and transactions occurring in an off-the-books cash account, one of which include false statements to the investigatory team concerning off-balance sheet accounts. When confronted with evidence of his misrepresentation, the CFO admitted to withholding the details of that account from the public auditor and from the investigatory team. In another instance noted in the report, RMB 21 million was transferred into the personal account of the company’s Accounting Manager with no collateral or written agreement, which “appears to violate the PRC foreign exchange control regulations (SAFE) and is a matter of grave concern given the company’s decision to transfer a significant sum to an employee of the company with no documentation or security.” The report made six recommendations, including a recommendation that the board of directorsors examine the responsibilities and duties of the CFO.
In its decision to delist the company, the Hearings Panel cited the extent and nature of serious accounting issues uncovered by the investigation, which were greater and more extensive than had appeared evident at the time of the Hearings Panel hearing, and include flagrant fraudulent behavior by management, including the CEO, who remains in his position. Further, the Hearings Panel noted that it believed the changes that would be necessary to enable the company to meet the regulatory standards of listed companies are so fundamental and far-reaching that the process is likely to take significant time. Moreover, the Hearings Panel stated that the company abused the trust of its shareholders and made misleading representations to Staff, the Hearings Panel, its auditors, and Audit Committee’s investigative team during the course of this delisting process and the investigation, and provided examples thereof in its decision. The company appealed the decision to the Listing Council.
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Hearings Panel decision. The Listing Council applauds the recent efforts that the company has taken to remediate the serious issues identified by its public accounting firm and further detailed in the report, yet there remain additional measures that must be completed. The Listing Council believes that the company is not appropriate for a NASDAQ listing at this time. The issues identified in the report are very concerning, and are representative of a company clearly not prepared for the rigors and responsibilities that are demanded of listed companies. The report identifies numerous violations of law as well as dishonesty on the part of management. In its arguments before the Listing Council, it is clear the company fundamentally confuses the reason for taking the remedial steps to address the findings of the report. The remedial steps that the company has taken, and commits to take, are not done for the purpose of securing a continued listing on NASDAQ, but rather to make it a better corporate citizen. The success of such efforts in this regard is something than can only be demonstrated over time.
The company does not have an inalienable right to be listed on NASDAQ. NASDAQ is charged with the protection of investors. A listing on NASDAQ is a privilege earned by companies that are able to demonstrate not only quantitative wherewithal, but also stringent qualitative characteristics required of all listed companies. Rule 5101 provides NASDAQ with “broad discretionary authority” over the listing of securities on NASDAQ “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. Rule 5101 is not invoked lightly and, in instances in which a public interest concern is identified, the issues are very serious. In the present case, while remedial steps were taken by the company, it is unclear that such steps will adequately address the company’s apparent culture of non-compliance with U.S. and PRC laws and regulations, so that the company is able to adequately fulfill its responsibilities as a listed public company. As such, it is consistent with the discretion afforded under Listing Rule 5101 to delist the company to protect investors while allowing the company to demonstrate over time its ability to act as a responsible corporate citizen.
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Publication Date*:
7/31/2012
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Identification Number:
1036
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Identification Number
599
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Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810 (c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Issue: The company was delisted by a Hearings Panel for public interest concerns, finding that it was not appropriate to maintain the listing of a company that is a public shell when a proposed merger designed to resolve the deficiency would not occur for some months, and a listing in the meantime may signal a determination that the resulting entity meets all NASDAQ requirements for listing, a determination it noted had not and could not make at that time. The Hearings Panel also noted that, while the information provided suggested the new entity would meet the quantitative standards, those are not the only standards required for approval. The Hearings Panel noted that the merger was contingent upon the company retaining its listing, and there appear to be no obvious synergies between the two companies and their past, current, and future operations. As such, the Hearings Panel concluded that merger partner’s interest in the company is the NASDAQ listing, which it further concluded raised legitimate questions about the merger’s benefits to shareholders and investors. Subsequent to the issuance of the Hearings Panel Decision, the company filed a Form 8-K with the Securities and Exchange Commission that disclosed the mutual termination of the merger agreement.
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Hearings Panel Decision. Upon review of the record and the disclosure concerning the termination of the merger agreement, the Listing Council concludes that the company is a shell and should be delisted. The issue before the Listing Council is whether a company with minimal employees, no operating business, and no appreciable revenues on a pro-forma basis over an extended period should be afforded continued listing, albeit suspended from trading on NASDAQ, while it seeks additional merger partners. The Listing Council does not believe this is in the best interests of stockholders or the investing public. The company has had more than one planned or contemplated merger fall through in the past six months and there is no evidence that a near term merger will be completed.
Pursuant to Listing Rule 5101, NASDAQ has “broad discretionary authority” over the listing of securities on NASDAQ “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. The Listing Council does not believe that allowing the company to remain listed with minimal employees, no operations, and no merger transaction on the horizon would in any way serve to protect the investing public.
Accordingly, the Listing Council affirms the Panel decision to delist the company’s securities based on the exercise of the broad discretionary authority of Listing Rule 5101.
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Publication Date*:
7/31/2012
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Identification Number:
599
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Identification Number
600
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Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810 (c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Issue: The company was delisted by a Hearings Panel for public interest concerns. In January 2010, the company issued a press release announcing that it had entered into an agreement to purchase certain assets for approximately $15 million. Over the following 18 months, the company provided updates regarding the status of the purportedly acquired assets in press releases and periodic filings with the Securities and Exchange Commission, discussing the progress of renovations, payment of deposits, and expected operational dates. In June 2011, the company hosted a conference call, during which the Chief Executive Officer disclosed for the first time that the acquisition had never been completed, and that the funds for the acquisition had been deposited into an account under the control of the CEO. The funds were subsequently invested in other assets. The company’s Chief Accounting Officer explained that the decision to provide false information about the matter to the public was due to worry that the cancellation of the acquisition would provoke negative reactions in the market. The company did not refute the facts noted above, but argued that it should remain listed while its internal investigation continued so that all facts and findings could be presented to the Hearings Panel. The company argued that investors are adequately protected, since its stock is currently suspended from trading on NASDAQ.
In affirming the Staff’s determination to delist the company, the Hearings Panel stated that the false public disclosures by the CEO and CAO regarding the acquisition and funds may not evidence an intent to defraud shareholders; however, such false disclosures demonstrate a lack of regard for basic principles of transparency and honesty, as well as for management’s fiduciary responsibilities to shareholders. The Hearings Panel noted in its decision that it only serves to magnify the Hearings Panel’s concerns that the CEO and CAO were able to hide their misconduct from the Board and the Chief Financial Officer, and for such an extended period of time. The Hearings Panel found the company’s internal controls clearly inadequate, and noted concerns that additional reporting, disclosure and internal control management deficiencies may yet be uncovered. The Hearings Panel also noted that the facts as presented suggest that the Board is not equipped to manage the crisis this company faces. As evidence, the Hearings Panel cited the Board’s failure to require management resignations, or at least restrict management access and activities during the investigation; its narrow mandate regarding the scope of the independent investigation; and its lack of engagement and oversight of accounting disclosures over the past 18 months, stating that all of such facts do not engender confidence that it can lead an investigation that can fully identify and remedy all control deficiencies within a reasonable period of time. To continue the listing, even subject to a suspension, in light of the admissions that have been made and the probability that the company will not file audited financial statements for an extended period of time would be inconsistent with NASDAQ rules and would serve to undermine the public’s confidence in its regulatory integrity.
Determination: Affirmed. The Listing Council is concerned the company is unable to determine whether the CEO and CAO misappropriated funds after the failure of the transaction. When faced with evidence of misappropriation, the Board failed to act appropriately by, at a bare minimum, restricting management access and activities during the investigation. The Listing Council further concludes that the company made false and misleading disclosures concerning the acquisition in filings with the Securities and Exchange Commission. The Listing Council is particularly concerned about the company’s admissions during the NASDAQ hearing process that it did not publicly disclose the failure of the acquisition because such disclosure could cause the company’s stockholders to react negatively. This reasoning gets the principles of transparency and accurate public statements completely backwards.
The Listing Council finds no reason to allow the company to remain listed. It is clear from the record that the company is unprepared to meet the governance standards required by listed companies and that it is not fully equipped for the rigors of the regulatory environment within which exchange-listed companies must operate.
Pursuant to Listing Rule 5101, NASDAQ has “broad discretionary authority” over the listing of securities on NASDAQ, “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. The Listing Council strongly disagrees with the company’s assertion that investors are adequately protected, since its stock is currently suspended from trading on NASDAQ. The Listing Council also strongly disagrees with the company’s assertion that allowing the company to remain listed, yet suspended from trading, will balance the need to protect prospective investors and the integrity of NASDAQ with the need for fair treatment of the company and its shareholders. To the contrary, allowing the company to remain listed in light of the facts developed in this matter would signal to both current and prospective shareholders a level of comfort with the company that is simply not present. Sending such a signal would in no way serve to protect investors nor maintain the public confidence in the market. Accordingly, the Listing Council affirms the Panel decision to delist the company’s securities based on the exercise of the broad discretionary authority of Listing Rule 5101.
The Listing Council finds no reason to allow the company to remain listed. It is clear from the record that the company is unprepared to meet the governance standards required by listed companies and that it is not fully equipped for the rigors of the regulatory environment within which exchange-listed companies must operate.
Pursuant to Listing Rule 5101, NASDAQ has “broad discretionary authority” over the listing of securities on NASDAQ, “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. The Listing Council strongly disagrees with the company’s assertion that investors are adequately protected, since its stock is currently suspended from trading on NASDAQ. The Listing Council also strongly disagrees with the company’s assertion that allowing the company to remain listed, yet suspended from trading, will balance the need to protect prospective investors and the integrity of NASDAQ with the need for fair treatment of the company and its shareholders. To the contrary, allowing the company to remain listed in light of the facts developed in this matter would signal to both current and prospective shareholders a level of comfort with the company that is simply not present. Sending such a signal would in no way serve to protect investors nor maintain the public confidence in the market. Accordingly, the Listing Council affirms the Panel decision to delist the company’s securities based on the exercise of the broad discretionary authority of Listing Rule 5101.
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Publication Date*:
7/31/2012
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Identification Number:
600
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Identification Number
602
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Rule 5250(c)(1): A company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A company that does not file through the EDGAR System shall supply to NASDAQ two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to NASDAQ at continuedlisting@nasdaqomx.com. All required reports must be filed with NASDAQ on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with NASDAQ shall contain audited financial statements.
Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Issue: The company was delisted by a Hearings Panel for public interest concerns, noting that the events that have occurred since the company’s independent public audit firm raised serious concerns do not instill confidence that the company is fully equipped for the rigors of the regulatory environment within which exchange-listed companies must operate. The Hearings Panel stated that the implementation of a remedial cash control plan had been, at best, poorly executed, with only $15 million of a purported $170 million transferred into the control of the Audit Committee. The Hearings Panel also cited concerns surrounding management’s leadership, noting the Acting CFO’s obstruction of the plan’s implementation by refusing to pay the advisors charged with its implementation and the CEO’s willingness to rehire her after her resignation. The Hearings Panel concluded that the CEO and the Acting CFO are equally responsible for the obstruction of the investigation and failure to implement the cash control plan. The Hearings Panel also found that the Board special investigative committee’s willingness to replace its counsel due to pressures apparently resulting from management’s distaste for the cash control plan and investigation, suggests an insufficiently empowered special committee. The Hearings Panel also described its serious concerns regarding the company’s disclosures regarding the recent events and the company’s inability to respond to the Hearings Panel’s questions regarding concerns that the company’s major equipment supplier is a related party, which, in its opinion, showed that the company is unprepared to meet the governance standards required by listed companies. Last, the Hearings Panel noted that the audit issues facing the company implicate substantial accounting, operational, and control failures that are likely to require significant time to resolve.
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Hearings Panel Decision. The facts and circumstances of this matter show a company faced with very serious allegations of potential illegal acts, severe failure of management to act aggressively to address those allegations, and an insufficiently strong Board to effectively control and remediate management’s failures timely. The independent investigation has been managed poorly at best, and clearly intentionally interfered with by management. The Listing Council takes very seriously the concerns of the audit firm surrounding the company’s inability to confirm bank account balances, accounts payable balances, sales amounts, sales terms and outstanding balances, and undisclosed related party transactions, all of which ultimately led the audit firm to conclude that an illegal act has or may have occurred. Coupled with the company’s failure to aggressively address these concerns and implement the audit firm’s recommendations, the Listing Council finds no reason to allow the company to remain listed. The Listing Council agrees with the Hearings Panel’s conclusion that the record shows the company is unprepared to meet the governance standards required by listed companies and that it is not fully equipped for the rigors of the regulatory environment within which exchange-listed companies must operate.
Pursuant to Listing Rule 5101, NASDAQ has “broad discretionary authority” over the listing of securities on the Global Market “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. The Listing Council disagrees with the company’s assertion that allowing the company to remain listed, albeit suspended from trading, will balance the need to protect prospective investors and the integrity of NASDAQ with the need for fair treatment of the company and its shareholders. To the contrary, allowing the company to remain listed in light of the facts developed in this matter would signal to both current and prospective shareholders a level of comfort with the company that is simply not present. Sending such a signal would in no way serve to protect investors nor maintain the public confidence in the market.
Accordingly, the Listing Council affirms the Panel decision to delist the company’s securities based on the exercise of the broad discretionary authority of Listing Rule 5101.
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Publication Date*:
7/31/2012
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Identification Number:
602
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Identification Number
603
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Rule 5250(c)(1): A company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A company that does not file through the EDGAR System shall supply to NASDAQ two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to NASDAQ at continuedlisting@nasdaqomx.com. All required reports must be filed with NASDAQ on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with NASDAQ shall contain audited financial statements.
Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810 (c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Issue: The company was delisted by a Hearings Panel for public interest concerns based on: the resignations of the company’s auditors, Chief Financial Officer, and an independent Board member and the reasons stated for those resignations; the serious questions raised by the reports of forensic accountants that go to core issues regarding the integrity of the company’s finances and operations; the lack of audited financials on file for 2010, uncertainty as to the reliability of prior years financials, and the multiple obstacles to prompt compliance with filing obligations; and, finally, the pattern of the company’s responses to requests from accountants and NASDAQ as this matter has unfolded.
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Panel Decision. As noted by the Panel, NASDAQ Listing Rule 5101 grants NASDAQ broad discretion to delist the securities of a company in order to maintain the quality of and public confidence in the market, prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and protect investors and the public interest. The bases noted by the Panel in its decision to delist the company fit squarely within the ambit of the rule. The serious allegations made against the company and its current management, supported by concerns noted by both its independent public auditor and independent investigator, together with the resignations of independent directors all support a determination to delist the company from NASDAQ. Furthermore, the Listing Council shares Staff’s concern regarding the feasibility of the company’s proposed timeline for compliance. The Listing Council notes that investigations concerning such serious allegations do not lend themselves to quick conclusion nor are the issues often identified easily resolved. Moreover, the Listing Council notes that the company has missed prior milestones it set for itself and has shown little demonstrable progress toward quick resolution of its deficiencies. Concerning to the Listing Council is that much of the delay in investigating and resolving the issues in this matter has been caused by the company, and not due to issues beyond the company’s control. As a self-regulatory organization, NASDAQ is charged with the protection of investors and the public interest. The Listing Council believes that allowing the company to remain listed on NASDAQ, whether halted or not, would be misleading to the investing public and signal a level of comfort with the company that is simply not present.
Accordingly, the Listing Council affirms the Panel decision to delist the company’s securities based on the exercise of the broad discretionary authority of Listing Rule 5101.
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Publication Date*:
7/31/2012
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Identification Number:
603
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Identification Number
614
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Rule 4310(c)(14): The issuer shall file with NASDAQ three (3) copies of all reports and other documents filed or required to be filed with the Commission. This requirement is considered fulfilled for purposes of this paragraph if the issuer files the report or document with the Commission through the Electronic Data Gathering, Analysis, and Retrieval system. An issuer that is not required to file reports with the Commission shall file with NASDAQ three (3) copies of reports required to be filed with the appropriate regulatory authority. All required reports shall be filed with NASDAQ on or before the date they are required to be filed with the Commission or appropriate regulatory authority. Annual reports filed with NASDAQ shall contain audited financial statements.
Rule 4300*: NASDAQ, in addition to applying the enumerated criteria set forth in the Listing Rule 4300 and 4400 Series, will exercise broad discretionary authority over the continued inclusion of securities in NASDAQ in order to maintain the quality of and public confidence in its market. Under such broad discretion, NASDAQ may apply additional or more stringent criteria for the continued inclusion of particular securities or suspend or terminate the inclusion of particular securities based on any event, condition, or circumstance which exists or occurs that makes continued inclusion of the securities in NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for continued inclusion in NASDAQ.
Issue: The Panel gave the company an extension to file its delinquent Form 10-Q for the quarter ended September 30, 2004. Pursuant to Listing Rule 4300, the Panel also exercised its discretionary authority and applied additional and more stringent criteria, whereby the Panel provided for a monitoring period of the company, which required the company to timely file all periodic reports ending on or before December 31, 2005. The company did not file the Form 10-Q within the original extension period and subsequently received additional extensions. The company also did not timely file its Form 10-K for the fiscal year ended December 31, 2004. The Listing Council called the Panel's decision to determine if the additional extensions were appropriate.
Determination: The Panel's decision was reversed because, after citing Rule 4300 and applying additional and more stringent criteria, the Panel did not hold the company to the heightened standard. When the company missed its Panel imposed deadlines, the Panel provided the company with additional time. At the time of the Listing Council's consideration, the company still had not filed its delinquent December 31, 2004 Form 10-K. Consequently, the Listing Council determined, as a policy, to limit the discretion that Panels could exercise and found that exceptions granted by the Panel should not be greater than 90 days from the date of issuance of the Panel's decision.
* Please note that Listing Rule 4300 was re-codified and changed in August 2005. NASDAQ also added interpretative material regarding the use of its discretionary authority. For the current version of the rule, see Marketplace Listing Rule 4300 and IM-4300.
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Publication Date*:
7/31/2012
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Identification Number:
614
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Identification Number
618
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Rule 4300*: NASDAQ, in addition to applying the enumerated criteria set forth in the Rule 4300 and 4400 Series, will exercise broad discretionary authority over the ... continued inclusion of securities in NASDAQ in order to maintain the quality of and public confidence in its market. Under such broad discretion ... NASDAQ may ... apply additional or more stringent criteria for the ... continued inclusion of particular securities or suspend or terminate the inclusion of particular securities based on any event, condition, or circumstance which exists or occurs that makes ... continued inclusion of the securities in NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for ... continued inclusion in NASDAQ.
Rule 4330(a)(3): NASDAQ may, in accordance with Rule 4800 Series ... apply additional or more stringent criteria for the ... continued inclusion of particular securities or suspend or terminate the inclusion of an otherwise qualified security if ... NASDAQ deems it necessary to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, or to protect investors and the public interest.
Issue: In 2003, after the company was advised its Chief Executive Officer ("CEO") and Chairman of the Board was the target of a grand jury investigation, the Board of Directors ("Board") renegotiated certain provisions of his employment agreement.
In 2004, the company's CEO and Chairman, and 55% shareholder, pled guilty to two felony counts of: (i) paying an illegal gratuity to an investment advisor and (ii) filing a false 1998 personal tax return, which resulted in him serving 18 months in federal prison, paying $2,000,000 in restitution and a $25,000 fine. Thereafter, the company entered into an agreement with its former CEO and Chairman, where the company would: (i) continue to pay his regular annual salary of $350,000 and bonus during his incarceration and (ii) pay him a "leave of absence" payment in the amount of $2,000,000 in consideration of his "good will, cooperation, and continuing assistance, and in recognition of his past service to the company, to help avoid litigation and for the other reasons." The company also agreed that he would remain Co-Chairman as well as Co-CEO of the company.
Determination: The company was properly delisted in order to preserve and strengthen the quality and integrity of and public confidence in The NASDAQ Stock Market and in order to protect prospective investors and the public interest. The nature of the offenses, which were fraud based, together with the Board of Directors responses to the offenses, pose serious public interest threats.
Specifically, the Listing Council was concerned that the company's Chairman, CEO and 55% shareholder at the time of the events that formed the basis for the fraud convictions, continued to exert influence and control over the company's affairs in his capacity as Chief Strategic Officer, Treasurer, Secretary, Director and as the company's majority shareholder, while incarcerated.
The Listing Council was also particularly concerned that, after the former Chairman and CEO was identified as the target of an investigation by the U.S Attorney's Office, the Board renegotiated certain provisions of his employment agreement and agreed to exclude, from the definition of a "for cause" termination, any termination based on the former CEO and Chairman's conviction of a felony unrelated to the company.
The Listing Council did not agree with the company that "in order to criticize the Board for agreeing to the provision, the staff must necessarily have concluded that the Board should have dismissed the former Chairman and CEO from his positions because of his plea agreement...". In the alternative, the Board could have decided not to take the pro-active step that it took, i.e., it could have left the employment agreement as it stood prior to the renegotiation.
The Listing Council found it unconscionable that the Board agreed to pay the former Chairman and CEO $2,000,000 in addition to his regular salary and bonus. The Listing Council believed the payment was a transparent attempt to pay his court-ordered restitution related to his guilty pleas. This action was further evidence of his influence over the company, which is at odds with shareholders' interests and good corporate governance.
The Listing Council was also concerned, given the heightened scrutiny of all companies' corporate governance and the extensive efforts that have been made by Congress and NASDAQ, among others, that the company would have allowed the former Chairman and CEO to sign the certifications required of him as Co-Chief Executive Officer under Sarbanes-Oxley, but for the notice from the Bureau of Prisons.
Based on these and other actions of the Board, the Listing Council had concerns whether the Board, which is comprised of the former Chairman and CEO's friends and family, had discharged its duty to the company's shareholders and was working on behalf of the company's best interest, or on behalf of the former Chairman and CEO's interest. The Listing Council found that the former Chairman and CEO's regulatory history, along with his ability to exert influence over the operations of the company and apparent influence over Board actions, provided grounds for denying the company's request for continued listing. Accordingly, the Listing Council found that the totality of the circumstances raised public interest concerns under Rules 4300 and 4330(a)(3) that made it appropriate to apply additional and more stringent criteria in order to preserve and strengthen the quality of and public confidence in NASDAQ and served as a basis for affirming the delisting of the company's securities.
* Please note that Rules 4300 and 4330(a) were re-codified and changed in August 2005. NASDAQ also added interpretative material regarding the use of its discretionary authority. For the current version of the rule, see Marketplace Rule 4300 and IM-4300.
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Publication Date*:
7/31/2012
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Identification Number:
618
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Identification Number
651
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Rules 4300 and 4330(a)(3): NASDAQ may exercise its discretion in applying additional or more stringent criteria for initial or continued inclusion or suspend or terminate the inclusion of an otherwise qualified security if NASDAQ deems it necessary to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, or to protect investors and the public interest.
Issue: A director of the company, who was also the president of the company’s subsidiary, and a consultant to the company were indicted for conspiracy to commit commercial bribery and securities fraud. The currency used to commit the fraud was the company’s securities, which were issued pursuant to a consulting agreement approved by the company’s board of directors. Further, the current president and chief executive officer and the vice president and chief operating officer of the company were two of the board members that approved the issuance of securities.
Determination: The company was properly delisted in order to preserve and strengthen the quality and integrity of, and public confidence in, The NASDAQ Stock Market, and in order to protect prospective investors and the public interest. The nature of the allegations, which included conspiracy to commit commercial bribery and securities fraud, pose serious threats to the investing public, investor confidence in The NASDAQ Stock Market and the integrity of The NASDAQ Stock Market. Specifically, the Listing Council found that these facts, coupled with the board’s approval of the consulting agreement and subsequent issuance of securities without performing any due diligence, appears to indicate that the company lacks adequate internal controls. The Listing Council continued to be concerned that the company’s current president and chief executive officer and the vice president and chief operating officer continue to hold management and board positions within the company and yet were two of the board members who approved the consulting contract without discharging their due diligence obligation.
* * *
Rule 4350(g): Each issuer shall solicit proxies and provide statements for all meetings of shareholders and shall provide copies of such proxy solicitation to NASDAQ.
Rule 4350(e): Each issuer shall hold an annual meeting of shareholders and shall provide notice of such meeting to NASDAQ.
Issue: The company solicited proxies and held its fiscal year 2002 annual meeting in February 2004.
Determination: The company was properly delisted for failure to comply with the proxy solicitation and annual meeting
requirements. Although the company solicited proxies and held a meeting in February 2004, those actions did not cure the company’s obligation to solicit proxies or hold its fiscal year 2002 annual meeting in 2003.
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Publication Date*:
7/31/2012
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Identification Number:
651
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Identification Number
672
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Rules 4300 and 4330(a)(3): NASDAQ may exercise its discretion in applying additional or more stringent criteria for initial or continued inclusion or suspend or terminate the inclusion of an otherwise qualified security if NASDAQ deems it necessary to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, or to protect investors and the public interest.
Issue: The company had not timely filed its Form 10-K because it was in the process of restating its prior financial statements. In connection with the restatement, the company was also performing an internal investigation. The Panel granted the company a one month extension to file its Form 10-K and concluded “there appears to have been no intent to mislead or defraud the investing public.”
Determination: There was insufficient record evidence for the Panel to reach a conclusion on the public interest issue, since the internal investigation was not yet complete. In the absence of the results of this investigation, the Panel’s conclusion was premature. The Panel’s decision was vacated to the extent it held that there appeared to have been no intent to mislead or defraud the investing public.
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Publication Date*:
7/31/2012
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Identification Number:
672
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Identification Number
685
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Rules 4300 and 4330(a)(3): NASDAQ may exercise its discretion in applying additional or more stringent criteria for initial or continued inclusion or suspend or terminate the inclusion of an otherwise qualified security if NASDAQ deems it necessary to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, or to protect investors and the public interest.
Issue: Staff's investigation revealed a stock exchange settlement agreement involving a director of the company, who was also an officer and significant shareholder. The agreement, in which the director acknowledged the facts in the agreement as true and correct, set forth the regulatory history of the director, including misrepresentations to the stock exchange and numerous serious violations of sales practice regulations, which occurred in the mid-1990's. The company stated that it made good faith efforts to address Staff's concerns through the director's resignation from the board and his position as an officer. In addition, the director provided irrevocable proxies for his voting rights to the independent directors of the company.
Determination: The company was properly delisted based on public interest concerns. The Listing Council believed that the stock exchange findings constituted a pattern of fraudulent behavior towards public investors. Furthermore, the director continued to exert influence over the company as a significant shareholder and an employee serving in an important role. Although the director provided irrevocable proxies to independent directors, the proxies expired in two years, and the director was not prevented from disposing of his shares or purchasing and voting additional shares of the company prior to such time. The director's admitted past violations of the stock exchange securities regulations and his continued influence over the company raised the risk of future violations of securities laws and regulations and provided grounds for denying the company's request for continued listing in order to protect the quality of and public confidence in The NASDAQ Stock Market and to protect investors and the public interest. The Securities and Exchange Commission (“SEC”) has held that "the risk associated with investing in NASDAQ is market risk rather than the risk that the promoter or other persons exercising substantial influence over the issuer is acting in an illegal manner."* The SEC has further held that "both the tax and the securities regulatory schemes depend on the honor, candor, and integrity of regulated persons to report accurately to the regulatory authority the information sought by such authority."**
* * *
Rule 4310(c)(4): $1 minimum bid price requirement for continued listing on the SmallCap Market.
Issue: The bid price of the company's common stock was below $1. The company stated that its stock was below $1 for only two days prior to delisting and, therefore, had not been below $1 for the 30 consecutive business days as required by Listing Rule 4310(c)(8)(B). The company maintained that its compliance with the minimum bid price requirement should therefore be evaluated based on the first 30 consecutive days after it begins trading on NASDAQ.
Determination: The company was properly delisted based on public interest concerns. Because the company did not comply with the minimum bid price requirement and did not have a definitive plan to regain compliance in the near term, it would be inappropriate to relist the company. In this regard, the SEC has determined that investors are entitled to assume that the securities on NASDAQ meet the listing requirements.
* DHB Capital Group, Inc., Securities Exchange Act Rel. No. 37069 (April 5, 1996) (quoting Tassaway, Inc., Securities Exchange Act Rel. No. 34151
(March 13, 1975)).
** JJFN Services, Inc., Securities Exchange Act Rel. No. 39343 (November 21, 1997).
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Publication Date*:
7/31/2012
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Identification Number:
685
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Identification Number
1647
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IM-5101-2: Listing of Companies Whose Business Plan is to Complete One or More Acquisitions
Generally, Nasdaq will not permit the initial or continued listing of a Company that has no specific business plan or that has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies.
However, in the case of a Company whose business plan is to complete an initial public offering and engage in a merger or acquisition with one or more unidentified companies within a specific period of time, Nasdaq will permit the listing if the Company meets all applicable initial listing requirements, as well as the conditions described below.
…
(b) Within 36 months of the effectiveness of its IPO registration statement, or such shorter period that the company specifies in its registration statement, the Company must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the deposit account (excluding any deferred underwriters fees and taxes payable on the income earned on the deposit account) at the time of the agreement to enter into the initial combination.
Rule 5110(c): Reverse Mergers (1) A Company that is formed by a Reverse Merger (a "Reverse Merger Company") shall be eligible to submit an application for initial listing only if the combined entity has, immediately preceding the filing of the initial listing application:
(A) traded for at least one year in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange, following the filing with the Commission or Other Regulatory Authority of all required information about the transaction, including audited financial statements for the combined entity...
Rule 5505: Initial Listing of Primary Equity Securities A Company applying to list its Primary Equity Security on the Capital Market must meet all of the requirements set forth in Rule 5505(a) and at least one of the Standards in Rule 5505(b).
(a) Initial Listing Requirements for Primary Equity Securities:
...
(3) At least 300 Round Lot Holders
Issue: May a special purpose acquisition company ("SPAC"), which has failed to consummate a business combination within the 36 month time period prescribed by IM-5101-2, nevertheless avoid de-listing because it expects to consummate a reverse merger prior to the expected date when de-listing would become effective?
Determination: Affirm the Hearing Panel decision to suspend and delist the Company.
The Company, which is a SPAC, acknowledged the ruling of the Hearings Panel that it had failed to consummate a business combination with the 36 month period required by IM-5101-2.
The Company's sole argument for asking the Listing Council to overrule the Hearing Panel decision was that the Company believed that it would be meaningless for the Listing Council to proceed with de-listing the Company's securities given that the Company did not expect Nasdaq, as a practical matter, to be able to finalize the de-listing process before the Company consummated its merger. That is, if the Company consummated its reverse merger before its de-listing became final and effective, then the merged entity would qualify for immediate initial listing on Nasdaq and it would not be subject to seasoning requirements. The Listing Council rejected this argument.
The Listing Council stated that it will not excuse a listed company for its self-acknowledged, numerous, and prolonged violations of the Listing Rules simply because the Company plans to take actions that may ultimately moot any practical impact of the punishment that Nasdaq would otherwise impose upon it. To excuse violations under these circumstances, the Council said, would diminish the importance of the Listing Rules and delegitimize the Listing Council and its work to enforce compliance with the Rules. Public confidence in Nasdaq depends upon the legitimacy of Nasdaq's system of self-regulation. The legitimacy of this system, in turn, requires Nasdaq to hold listed companies consistently accountable when they fail to satisfy the requirements of the Listing Rules. Thus, even if the practical impact of de-listing a company's securities from Nasdaq was likely to be minimal or even nil, the Listing Council determined that it must nevertheless order de-listing when the fair administration of the Listing Rules requires the Listing Council to take such action or renders it appropriate.1
That said, the Listing Council disagreed with the Company that de-listing the Company's securities would be pointless and have no practical effect given the imminence of the Company's merger. In light of the history of this matter, the Listing Council said that it lacked confidence in the Company's latest assertions about the likelihood success of and the timing of its plan to consummate its merger. The Listing Council noted that almost a year has passed since the Company first announced its prospective merger, and the transaction had yet to close despite several assurances by the Company that it would do so. Even during the course of this appeal, the Company changed its position as to when it expected to obtain shareholder approval for the merger.
Moreover, even if the Company did consummate the merger as planned, the Listing Council did not believe that Rule 5110 required Staff to initially list the combined entity. Rule 5101 provides Nasdaq with "broad discretionary authority" over the listing of securities on Nasdaq "in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest." Pursuant to this authority and Nasdaq's Interpretive Material on the application of Rule 5101 (IM-5101-1), Nasdaq may "impose additional or more stringent criteria" to the application of its Rules. Thus, Staff was empowered to determine that because the Company was subject to a pending de-listing decision at the time it executed a reverse merger, the merged entity did not meet the one year prior listing requirement set forth in Rule 5110(c)(1) and must trade over-the-counter for a year prior to initial listing on Nasdaq.
Even if the Listing Council was sympathetic to the Company's plight, the Listing Council noted that it lacked discretionary authority to grant the Company further exceptions from compliance with the Rule 5505. Rule 5505 (the "Public Holder Requirement") a listed company's securities have at least 300 round lot holders. Rule 5820(d)(1) states that the Listing Council may grant an exception for a period not longer than 360 calendar days from the date of the Staff's delisting determination with respect to the deficiency for which the exception is granted; Staff issued its delisting decision for the Company's failure to comply with the Public Holder Requirement in February 2017.
The Listing Council stated that the scope of its authority to grant the Company an exception from the Business Combination Requirement was less certain. Although nothing in the Listing Rules expressly precluded the Listing Council from exercising its discretionary authority to grant exceptions under Rule 5820(d)(1), the nature of IM-5101-2 was such that this limitation could be reasonably implied. The Listing Council agreed with Staff that the Commission seemingly approved the Exchange's rules to list SPACs, in part, because the Exchange assured the Commission that any listed SPACs would face de-listing if they failed to complete a business within 36 months of the effective date of their initial public offering registration statement. See Securities Exchange Act Release No. 34-58228, 73 FR 44794 (July 31, 2008), SR-Nasdaq-2008-013 (July 25, 2008). Even if such a limitation on the Listing Council's authority was not reasonably implied, the Listing Council found good policy reasons for it to refrain from granting SPACs additional time beyond 36 months to complete their business combinations. The Council stated that the inability of a SPAC to execute a business combination, and to do so within the generous three year time period that the Exchange allots to it, strongly indicates that the SPAC is not fit for continued listing on the Exchange. It concluded that the listing of a company's securities for trading on Nasdaq is a mark of distinction that should not be afforded to companies that cannot fulfill in a timely manner even their most basic and fundamental corporate missions.
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[1]The Listing Council noted that, on a dubious basis, the Company created the very scenario that it asked the Listing Council to help it to avoid. That is, the Company filed an appeal of the Hearings Panel decision even though it expressly acknowledged in its appeal that it did not dispute the Hearing Panel's determination that the Company is non-compliant with the Listing Rules and therefore subject to de-listing. By the mere act of filing this appeal, the Company set in motion an appellate process whose only possible effect was to delay a final de-listing action by several months. Although the Listing Council encourages listed companies to file legitimate appeals to vindicate their rights under the Listing Rules, the Listing Council is loathe to reward companies that file frivolous appeals in an effort to game the system and to achieve strategic business goals for themselves. The Listing Council stated that it was especially reticent to reward such behavior when it observes that the companies which engage in it were represented by experienced advisors who are well-versed in the Listing Rules and the procedures of this Listing Council.
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Publication Date*:
10/15/2018
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Identification Number:
1647
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Identification Number
1115
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Filing Delinquency and Public Interest
Rule 5101: Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Rule 5110(b): Nasdaq may use its discretionary authority under the Rule 5100 Series to suspend or terminate the listing of a Company that has filed for protection under any provision of the federal bankruptcy laws or comparable foreign laws, or has announced that liquidation has been authorized by its board of directors and that it is committed to proceed, even though the Company's securities otherwise meet all enumerated criteria for continued listing on Nasdaq. In the event that Nasdaq determines to continue the listing of such a Company during a bankruptcy reorganization, the Company shall nevertheless be required to satisfy all requirements for initial listing, including the payment of initial listing fees, upon emerging from bankruptcy proceedings.
Rule 5250(c)(2): Each Foreign Private Issuer shall submit on a Form 6-K, an interim balance sheet and income statement as of the end of its second quarter. This information, which must be presented in English, but does not have to be reconciled to U.S. GAAP, must be provided no later than six months following the end of the Company's second quarter. In the case of a Foreign Private Issuer that is a limited partnership, such information shall be distributed to limited partners if required by statute or regulation in the jurisdiction in which the limited partnership is formed or doing business or by the terms of the partnership's limited partnership agreement.
Issue: At issue in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that the Company does not comply with Rule 5250(c)(2), which requires the Company to file interim financial reports, or Rule 5110(b) as the Company filed for protection under its home country’s bankruptcy laws. Staff also raised public interest concerns pursuant to Rules 5101 and IM-5101-1. A Panel determined to grant the Company additional time to regain compliance, but subsequently determined to delist the Company for failing regain compliance by the conclusion of the extension.
Determination: Reverse the Panel decision to delist the Company.
It appears that the Company faced unanticipated delays in the bankruptcy process, including filing of various motions and creditor meetings, which resulted in the Company not regaining compliance within the time granted by the Panel. In its submissions to the Listing Council, the Company states that it is diligently working to obtain all necessary approvals, complete the restructuring, emerge from bankruptcy, and immediately evidence compliance with all applicable requirements for initial listing on the Capital Market well within the discretionary period available to the Listing Council. The Company has made some progress in this regard, reaching a milestone with the court’s approval of the creditors’ plan of settlement. In its brief to the Listing Council, the Company represented that the final settlement with the creditors will be approved by the court within approximately 30 to 45 days after the approval of the plan. The Company also represents that, following its emergence from bankruptcy, it will begin new operations with anticipated bookings of up to approximately $14 million. In its brief to the Listing Council, Staff notes that, because the Company’s shares are currently suspended from trading on Nasdaq and the post-merger company must meet all the requirements for initial listing, it does not object to the Listing Council granting the Company additional time to demonstrate compliance with initial listing standards.
The Panel determined to grant the Company the full extent of time available to allow it to regain compliance. When the Company did not meet the terms of the Panel decision, the Panel appropriately moved to delist the Company. The Listing Council has discretionary authority to grant the Company an additional extension of time to regain compliance. In light of the above, the Listing Council believes that allowing the Company to remain listed on Nasdaq yet suspended from trading presents a low risk of investor harm.
Accordingly, the Listing Council reverses the Panel decision to delist the Company and grants the Company through July 2014 to emerge from bankruptcy and evidence compliance with all requirements for initial listing on the Capital Market. Nothing in this decision limits the Listing Council from revisiting its determination should it become aware of a change in the facts and circumstances of the matter, which, in the opinion of the Listing Council, warrant modification of its decision.
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Publication Date*:
8/5/2014
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Identification Number:
1115
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Identification Number
1037
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Public Interest
Rule 5101: NASDAQ is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. NASDAQ stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. NASDAQ Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. NASDAQ, therefore, in addition to applying the enumerated criteria set forth in the Listing Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in NASDAQ in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In all circumstances where the Listing Qualifications Department (as defined in Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
Bid Price
Rule 5550(a)(2): A Company that has its Primary Equity Security listed on the Capital Market must continue to maintain a minimum bid price of at least $1 per share.
Issue: The company was delisted by a Hearings Panel for public interest concerns and for failure to regain compliance with NASDAQ’s minimum bid price requirement.
After granting the company two 180 day compliance periods to regain compliance with the minimum bid requirement, Staff issued a delisting determination. The company appealed the determination to the Hearings Panel. During the Hearings Panel proceedings, Staff determined the company was a public interest concern based on the action it took in writing off substantial loans owed by the company’s CEO, who is also Chairman of the company. On November 16, 2011, the Hearings Panel issued a decision to delist the company based on its non-compliance with the minimum bid price requirement and for public interest concerns. On November 29, 2011, the company appealed the Hearings Panel decision to delist the company to the Listing Council.
Bid Price
The company has been, and continues to be, out of compliance with NASDAQ’s bid price requirement. The company failed to regain compliance with the bid price rule by effectuating a reverse stock split, as it had committed to do as a condition of receiving a second 180 compliance period. Staff issued a delisting determination at the expiration of the second compliance period, consistent with Listing Rule 5550(a)(2).
Subsequent to Staff’s delisting determination, and the company’s appeal of the matter to the Hearings Panel , the company asserted that it had regained compliance with Listing Rule 5550(a)(2) since its bid price had closed at or above $1.00 for ten trading days. Staff had not made such a determination and was reviewing what it considered suspicious trading in the company’s stock. Upon completion of its preliminary review of the aberrant trading in the company’s stock, Staff determined to extend the period to regain compliance with the bid price requirement to twenty days, consistent with the authority provided by Listing Rule 5810(c)(3)(F). Staff based its decision on several facts that led it to believe that the stock was manipulated.
The company did not maintain a bid price of $1 or more during the twenty day compliance period, never had a closing bid price significantly over $1, and currently has closing bid prices in the mid 20 cent range, which is near the price it had traded prior to the brief run up in its stock price. The company had committed to effectuate a stock split if its stock was still below $1.00 at the end of the second compliance period, a condition to receiving the second period pursuant to Listing Rule 5810(c)(3)(A)(ii), yet did not do so. The company did not indicate a willingness to effectuate a reverse stock split during the Hearings Panel proceedings.
Public Interest Concerns: Related Party Loan Write Off
Prior to its listing in August 2008, the company extended loans totaling approximately $140 million to two companies controlled by the company’s CEO and largest shareholder for the stated purpose of funding the construction of expressways in China. Subsequently, the loan terms were modified and extended on multiple occasions. Despite receiving only one interest payment on the non-performing notes, the company also froze interest accruals on the non-performing notes and determined to extend $129 million in new loans to the two entities owned and controlled by the Chairman and CEO, in addition to two other companies also owned by him (collectively, the “Non-Performing Loans”).
In September 2009, in an attempt to collect on the monies owed by the CEO’s entities, the company entered into a letter of intent to purchase 51% of one of the companies, yet it had to abandon the purchase when it was clear that government approval was not forthcoming. In July 2011, the company announced that its board of directorsors had determined to write off a substantial portion of the Non-Performing Loans. The company also announced that the CEO had offered ownership interest in a commercial, residential real estate and retail shopping mall development project as partial payment of the Non-Performing Loans, and that the board of directorsors was evaluating the proposal. In August 2011, the company issued a press release that announced that the board of directorsors had met and discussed, among other things, the company’s plans to write off the Non-Performing Loans involving the CEO, and taking a 51% interest in a property held by the CEO as a partial offset to the Non-Performing Loans. In a Form 8-K filed with the SEC in October 2011, the company stated that it had entered into agreements to acquire 51% of the entity controlled by the CEO, (the “Development Company”), as described in the company’s prior disclosures. The company also noted that it had recorded provisions for bad debt expense of $149.5 million, or more than 70% of the $210 million owed by the companies controlled by the CEO.
In October 2011, Staff informed the company that it had determined that the company’s actions concerning the related party Non-Performing Loans represented a public interest concern, which was an additional basis for delisting pursuant to Listing Rule 5101. As a basis for its determination, Staff asserted that the company failed to undertake sufficient efforts to collect the amounts due on the Non-Performing Loans, instead accepting rights to control a separate related-party company, the value of which was much less than the outstanding principal and interest balances. Staff further noted that the company’s failure to aggressively pursue collection efforts, and the subsequent transactions, were done for the benefit of the CEO and to the detriment of non-affiliated shareholders. In response to the additional basis for delisting, the company claimed that management and the board of directorsors acted in the best interests of the public shareholders with respect to the Non-Performing Loans, noting that it had modified, extended, and deferred interest payments on the loans as a normal response to any non-performing loan and the decision to write off the majority of the loan was made only made after all efforts were exhausted.
Public Interest Concerns: CFO Resignation
In mid-December 2011, the company issued a Form 8-K that disclosed that, the company received a letter of resignation on September 21, 2011 from CFO of the company, who was also a company director. The resignation letter was sent to the CEO. The company asserted in the Form 8-K that it did not accept the CFO’s resignation, but that it knew that he did not continue to perform his duties as CFO of the company. There is evidence in the record that the company along with then-company counsel and independent auditors were aware of the CFO’s unambiguous and immediate resignation from the company as a director and CFO. The company appointed an interim CFO a day prior to filing the mid-December 2011 Form 8-K.
Notwithstanding the CFO’s resignation several SEC disclosures were subsequently filed with the SEC containing his signature. As detailed in the company’s mid-December 2011 Form 8-K, the company’s Form 10-K for the fiscal year ended June 30, 2011 filed on October 13, 2011, its Quarterly Report on 10-Q for the quarter ended September 30, 2011, filed on November 14, 2011 and its Annual Report on Form 10-K/A for the fiscal year ended June 30, 2011, filed on November 14, 2011, all of which included the resigned CFO’s signatures, had in fact not been prepared or reviewed by the resigned CFO, and the resigned CFO had not personally signed such reports or consented to the use of his signature on such reports. It also appears that the company forged the resigned CFO’s signature on a letter to Staff, dated September 30, 2011 – eight days after his resignation and unknown to him.
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Hearings Panel decision.
Bid Price
The Listing Council concludes that Staff acted appropriately in delisting the company based on bid price deficiency and its failure to cure the deficiency with a reverse stock split at the end of its second compliance period as it had committed to do. The Listing Council further concludes that it was appropriate for Staff to apply a 20-day compliance period to the bid price deficiency pursuant to Listing Rule 5810(c)(3)(F) based on concerns of stock price manipulation. The company asserts that the increases in its stock price and volume are due to the public’s positive reaction to the Development Company acquisition. The Listing Council finds this argument unpersuasive given that the abnormal trading in the company’s stock began over a month after the initial notice of the potential acquisition on, yet days prior to subsequent news concerning the prospective transaction. The Listing Council further concludes that Hearings Panel acted appropriately in delisting the company for failing to regain compliance with the minimum bid price requirement. The company was unwilling to effectuate a reverse stock split adequate for it to regain compliance with Listing Rule 5550(a)(2) and the company’s closing bid price was declining during the period from the Hearings Panel hearing through the issuance of its decision.
The company’s revised compliance plan provided to the Listing Council includes a provision to seek authority to effectuate a reverse stock split to regain compliance with Listing Rule 5550(a)(2), which would take approximately 45 to 50 days according to the company. The Listing Council believes that the company has had ample opportunity to cure its bid price deficiency over the 360 days it was afforded by Staff, and as such, the Listing Council finds no reason to reverse the Hearings Panel’s decision to delist the company.
Public Interest Concerns: Related Party Loan Write Off
The company wrote off as bad debt approximately $150 million of the $210 million owed under the Non-Performing Loans. The Listing Council believes that it was a reasonable determination to find a public interest concern based on the facts and circumstances. The Non-Performing Loans were made to entities controlled by the company’s Chairman and CEO, who received the benefits of the loans over many years, paying negligible interest and repaying only a fraction of the original amount loaned. The Listing Council is concerned that the company has not acted in the best interest of its public shareholders and believes that the company’s actions with respect to the Non-Performing Loans show a pattern of conduct that, in aggregate, reasonably support a determination that delisting was warranted pursuant to Listing Rule 5101.
Public Interest Concerns: CFO Resignation
The Listing Council finds very concerning the apparent forgery of the resigned CFO’s signature on documents filed with the Commission and submitted to NASDAQ, the failure to disclose the CFO’s resignation as CFO and director timely, and the statements made an independent director at the Hearings Panel hearing, which were misleading and evasive. It is undisputed that the CFO resigned in September 2011. It is also undisputed that the CEO and independent director were notified of resignation at the time of the resignation. Notwithstanding, the CEO and independent director permitted the company to submit documents to the SEC and NASDAQ with the resigned CFO’s signature as the purported CFO. In addition, at the Hearings Panel hearing, which occurred after the resignation of the CFO yet before the appointment of an interim CFO, an independent director stated that he had spoken to the CFO regarding possible manipulation of the company’s stock price. The earliest evidence in the record of NASDAQ’s concern regarding possible manipulation of the company’s stock price was in a request for information sent to the company’s then-counsel on September 22, 2011, a day after the resignation of the CFO from the company. The Listing Council finds the company’s misrepresentations and lack of disclosure concerning CFO’s resignation very troubling and an additional basis to delist the company pursuant to Listing Rule 5101.
Rule 5101 provides NASDAQ with “broad discretionary authority” over the listing of securities on NASDAQ “in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. Listing Rule 5101 is not invoked lightly and, in instances in which a public interest concern is identified, the issues are very serious. In the present case, Staff’s concerns over the company’s actions concerning the loans made to the CEO and Chairman were sufficient to find a public interest concern and to delist the company pursuant to Listing Rule 5101. The company’s misrepresentations and lack of disclosure concerning the CFO’s resignation is an independent, and truly troubling, basis for determining the company represents a public interest concern, and thus warrants delisting pursuant to Listing Rule 5101.
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Publication Date*:
7/31/2012
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Identification Number:
1037
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Identification Number
1089
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Public Interest and Quantitative Continued Listing Standards
Rule 5101: Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Rule 5110(b): Nasdaq may use its discretionary authority under the Rule 5100 Series to suspend or terminate the listing of a Company that has filed for protection under any provision of the federal bankruptcy laws or comparable foreign laws, or has announced that liquidation has been authorized by its board of directors and that it is committed to proceed, even though the Company's securities otherwise meet all enumerated criteria for continued listing on Nasdaq. In the event that Nasdaq determines to continue the listing of such a Company during a bankruptcy reorganization, the Company shall nevertheless be required to satisfy all requirements for initial listing, including the payment of initial listing fees, upon emerging from bankruptcy proceedings.
Rule 5550(b): For continued listing, a Company shall have either:
(1) Equity Standard: Stockholders' equity of at least $2.5 million; (2) Market Value of Listed Securities Standard: Market Value of Listed Securities of at least $35 million; or (3) Net Income Standard: Net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.
Issue #1: As initially presented to the Listing Council, at issue in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that the Company does not comply with Rule 5550(b), which requires the Company to have a minimum of $2.5 million in stockholders' equity, or Rule 5110(b) as the Company filed for protection under Chapter 11 bankruptcy. Staff also raised public interest concerns pursuant to Rules 5101 and IM-5101-1. Staff determined to deny the Company continued listing. On appeal, a Panel initially determined to grant the Company additional time to regain compliance subject to certain milestone, but subsequently determined to delist the Company for failing to meet all of the milestones.
Determination #1: Reverse the Panel decision to delist the Company.
In its submissions to the Listing Council, the Company notes that it is diligently working to obtain all necessary approvals, complete the restructuring, emerge from bankruptcy, and immediately evidence compliance with all applicable requirements for initial listing on the Capital Market well within the discretionary period available to the Listing Council. Moreover, the Company notes that the its Board of Directors will be reconstituted concurrent with the Company's emergence from bankruptcy so as to ensure the Company's compliance with all applicable board composition and corporate governance criteria upon emergence from bankruptcy.
Staff argues that the Company should be delisted because it failed to meet the milestones of the Panel decision and its own deadlines, and it failed to provide evidence that it will satisfy the applicable initial listing standards upon its emergence from bankruptcy. In addition, Staff is concerned that maintaining the Company's listing does not protect investors or the integrity of Nasdaq, notwithstanding that its securities are suspended from trading on Nasdaq. In support of this argument, Staff notes that prospective investors have an expectation that companies listed on Nasdaq meet the requirements of listing.
The Listing Council notes Staff's concern, but believes the risk of investor harm is low. The Company has made ongoing disclosure of the status of the bankruptcy and reorganization. Hence investors are aware of the bankruptcy proceedings, and importantly the Company appears to have genuine viable business operations. In this regard, the Company disclosed $328,377,000 in revenues as of the last fiscal quarter. As such, it is unclear to the Listing Council what prospective investor harm is caused by a Company that is suspended from trading on Nasdaq, is traded with minimal volume over the counter, has provided ongoing public disclosure of its bankruptcy proceedings, and has significant other operations. The Listing Council is aware and considered that the Company has not filed its 10-K for the last fiscal year, but it believes for the reasons set forth above that, even with that failure, the risk of investor harm is low.
Bankruptcy proceedings can take time to resolve and the bankruptcy in the present case is, at the very least, adversarial. The Listing Council is unable to continue the Company's listing in perpetuity as it has limited discretion to grant a deficient company an extension to its listing on Nasdaq. The Panel previously granted the Company the full extent of its discretionary authority to allow the Company to regain compliance. When faced with clear evidence that the Company would be unable to regain compliance within its discretionary period, the Panel appropriately determined to delist the Company. The Listing Council, however, has additional discretionary authority that it can exercise in this matter. Based on the facts and circumstances of this case and for the reasons stated above, the Listing Council has decided to exercise its discretionary authority and allow the Company to remain listed on Nasdaq, subject to a suspension of trading.
Accordingly, the Listing Council reverses the Panel decision to delist the Company.
Issue #2: Should the Company remain listed when, subsequent to the issuance of the Listing Council decision, the Company filed for Chapter 7 liquidation, became deficient for not meeting board independence requirements, and became delinquent in paying its listing fees to Nasdaq. Based on the new facts and circumstances, the Listing Council revisited the matter and issued a second decision.
Decision #2: Subsequent to the issuance of the Listing Council decision in this matter, Staff notified the Company and Listing Council of two additional deficiencies: (1) Rule 5250(f), which requires payment of applicable Listing Fees and (2) Rule 5605, which requires a majority independent board and independent directors on certain committees. Staff noted that these deficiencies served as additional bases for delisting the Company's securities from Nasdaq. Staff also noted that the bankruptcy proceedings were converted from Chapter 11 bankruptcy to Chapter 7 liquidation. In response, the Company stated that that an interim Trustee was recently appointed and that the election for the permanent Trustee will be held in the near future, and thereafter the decision relating to the payment of the 2013 Nasdaq annual fee, and the timing of payment of such fee, will be made by the permanent Trustee. Last, the Company noted that it still remains possible that the proceeding could be converted back to a Chapter 11 proceeding in the future.
In conducting its review of the new facts and circumstances of this matter, the Listing Council considered the entire record reviewed by the Listing Council in issuing its initial decision, as supplemented by Staff's letter and the Company's response noted above. As disclosed by Staff's letter, the facts and circumstances on which the Listing Council based its initial decision have changed. The Company's Chapter 11 reorganization has been converted into Chapter 7 liquidation. The Company represented in its response that it remains possible that the bankruptcy could be converted back to Chapter 11 reorganization. However, the Company provided no information on how or when such a conversion could take place. Therefore, in the absence of any evidence that the Company could emerge from its Chapter 7 bankruptcy proceedings as an operating company that can comply with the listing requirements on or prior to the expiration of the discretion afforded to the Listing Council, it has determined to delist the Company.
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Publication Date*:
8/21/2013
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Identification Number:
1089
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