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  Listing Council Decision 2019-2
Identification Number 1719

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.

Publication Date*: 11/7/2019 Mailto Link Identification Number: 1719
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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