FINRA Rule 6490
FINRA Rule, 6490, recently enacted in September 2010, requires issuers of equities and debt securities not listed on exchanges to provide timely notice to FINRA of certain corporate actions. These corporate actions include name changes, forward stock splits, reverse stock splits, distributions of cash or securities such as dividends, stock splits and other actions, and rights and subscription offerings.
FINRA Rule, 6490, recently enacted in September 2010, requires issuers of equities and debt securities not listed on exchanges to provide timely notice to FINRA of certain corporate actions. These corporate actions include name changes, forward stock splits, reverse stock splits, distributions of cash or securities such as dividends, stock splits and other actions, and rights and subscription offerings. The new Rule codifies the Securities Exchange Act Rule 10b-17. The Rule requires issuers to complete and file a document with FINRA at least 10 business days prior to the record date of the corporate action. FINRA approval must be received prior to the corporate action becoming effective. In addition, FINRA may request additional documents, conduct detailed and selective reviews of the issuer submissions and cause the issuer to delay the announcement of its corporate action. A FINRA review will be triggered if any of the five factors set forth in Rule 6490 are thought to be present:
• FINRA believes the forms are incomplete, inaccurate or filed without the appropriate corporate authority;
• The issuer is not current in its reporting obligations with the Securities and Exchange Commission;
• Persons involved in or related to the corporate action are the subject of pending or settled regulatory action or are under investigation by a regulatory body or are the subject of a pending criminal action related to fraud or securities law violations;
• Persons related to the corporate action are likely involved in fraudulent activities involving securities or may pose a threat to investors; and
• There is significant uncertainty in the settlement and clearance process for the issuer’s securities.
There are fines for issuers that fail to comply with the Rule including:
• Timely Rule 10b-17 Notification 10 business days before the Action - filing fee $200.
• Late filing, but filing at least 5 calendar days before the Action - $1,000.
• Late filing, but filing at least 1 business day before the Action - $2,000.
• Filing on or after the Action date - $5,000.
ABOUT THE AUTHOR: Brenda Lee Hamilton, P.A.
Brenda Hamilton our law firm’s founder has counseled clients in securities law transactions advising issuers in going public transactions, equity and debt offerings, corporate law matters and restructurings, securities transactions and disclosures, corporate identity theft and hostile takeovers. Ms. Hamilton assists clients in all of the going public process including filing of Form S-1 Registration Statements and Form 211 and symbol assignment from the Financial Industry Regulatory Authority (“FINRA”). She has served as corporate and special counsel to corporations in a variety of industries including biometrics, manufacturing, oil and gas, mining and metals, engineering, environmental remediation, alternative fuel, finance, real estate, medical, pharmaceutical, research, publishing, research and development, restaurant and hospitality, science and technology, software development and telecommunications.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.