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  Listing Council Decision 2011-3
Identification Number 602
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  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.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 602
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