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  Listing Council Decision 2014-2
Identification Number 1133
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.
 
Publication Date*: 11/19/2014 Mailto Link Identification Number: 1133
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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