DTC Eligibility Q & A
DTC Eligibility Q & A
DTC Eligibility Q & A
DTC limits its service by placing a chill (“DTC Chill”) on a security and
terminates its services by placing a lock (“Global Lock”) on the security.
Is There A Conspiracy Between The DTC
And The SEC To Eliminate All Small Cap
Public Companies By DTC Placing
Global Locks And Chills On Their
Securities?
When DTC eligibility is limited or terminated, issuers and their securities
attorneys often scream foul play, asserting various conspiracy theories, each
more ludicrous than the last. We have all read about issuers who
self-righteously proclaim that their loss of eligibility was due to conniving
short sellers, nefarious clearing firms and the purported “agenda” of the
SEC to eliminate small broker-dealers and microcap issuers.
The reality is that microcap issuers lose DTC’s services for three legitimate
reasons: failures to cover, illegal issuances of free trading securities and
fraudulent investor relations activity.
If I Obtain A Legal Opinion, Will I Get
DTC Eligibility Back For My Company?
On September 24, 2009, the SEC determined that DTC must provide
issuers with fairness procedures, adding further that the suspension of its
services to an issuer is subject to SEC review upon request. Unfortunately,
the SEC has not precisely defined adequate fairness procedures. Even with
a fairness hearing, there can be no assurance that DTC will resume its
services for an issuer’s securities; it continues to have a broad discretion
with respect to its services.
What Should I Do If I Want To Get
DTC Eligibility Or Have A DTC Chill
Removed?
Because the DTC may refer securities violations that it discovers to the
SEC’s Division of Enforcement, issuers should consult with a securities
attorney at all stages of the DTC process, particularly when information
must be provided by the issuer. The selection of a securities attorney to
address problems (and potential problems) should not be considered a
routine legal matter. Issuers expecting to obtain and maintain eligibility
need to recognize that their securities could become subject to a DTC
Chill if they go public in a reverse merger or use the services of securities
professionals - including unregistered brokers, investor relations firms,
transfer agents, and, even securities lawyers - who have been the subject
of SEC investigations and enforcement actions.
For further information about this securities law Q & A, please
contact Brenda Hamilton, Securities Attorney at 200 E. Palmetto
Park Rd., Suite 103, Boca Raton Florida, (561) 416-8956, or
info@securitieslawyer101.com. This securities law blog post is
provided as a general informational service to clients and friends
of Hamilton & Associates Law Group, P.A. and should not be
construed as, and does not constitute legal advice on any specific
matter, nor does this message create an attorney-client
relationship. Please note that the prior results discussed herein do
not guarantee similar outcomes.