OTC Markets recently implemented changes to the OTC Markets Disclosure Guidelines for issuers quoted with the “OTC Pink Current” information tier. These changes became effective on January 3, 2013.
Under the revised, “OTC Pink Alternative Reporting Standards”, issuers who provide financial statements audited by an accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”) are not required to provide an attorney opinion letter. This revision will have minimal impact for issuers complying with the OTC Pink Alternative Reporting Standard since most pink sheet issuers cannot afford the costs or time commitment associated with obtaining an audit from a PCAOB registered accounting firm.
Another revision to the OTC Pink Alternative Reporting Standards eliminates the requirement that issuers provide quarterly attorney opinion letters. Under the revised OTC Pink Alternative Reporting Standard, issuers must only provide an attorney opinion letter when filing their annual report. For issuers, this revision may reduce costs associated with obtaining attorney opinion letters but will have little impact on the investing public. As demonstrated by the string of recent SEC enforcement cases involving lawyers, attorneys fail in their role as the gatekeepers for OTC Markets disclosures. These recent cases demonstrate that many securities attorneys not only fail to comply with the securities laws but also fail to comply with the OTC Markets Disclosure Guidelines and state bar authorities when rendering attorney opinion letters for viewing by the public at large.
The OTC Markets Disclosure Guidelines continue to have an absolute requirement that issuers report within four days of their occurrence, material events. This requirement is similar to that imposed on SEC reporting issuers to report material events on Form 8-K.
Under OTC Markets Disclosure Guidelines, material corporate events that must be reported include:
* Entry or termination of a material definitive agreement (this includes agreements involving convertible securities);
* Completion of acquisition or disposition of assets, including but not limited to transactions involving reverse mergers;
* Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of an issuer;
* Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement;
* Costs associated with exit or disposal activities
* Material Impairments;
* Sales of equity securities;
* Material modification to rights of security holders;
* Changes in issuer’s certifying accountant;
* Non-reliance on previously issued financial statements or a related audit report or completed interim review;
* Changes in control of issuer;
* Departure of directors or principal officers; election of directors; appointment of principal officers;
* Amendments to the issuers articles of incorporation or bylaws;
Changes in the issuers fiscal year end;
* Amendments to the issuer’s code of ethics, or waiver of a provision of the foregoing; and
* Other events the issuer considers to be of importance.
The OTC Markets website cautions issuers and shareholders about the duty to provide current information.
“Federal securities laws, such as Rules 10b-5 and 15c2-11 of the Securities Exchange Act of 1934 (“Exchange Act”) as well as Rule 144 of the Securities Act of 1933 (“Securities Act”), and state Blue Sky laws, require issuers to provide adequate current information to the public markets… Persons with knowledge of such events would be considered to be in possession of material nonpublic information and may not buy or sell the issuer’s securities until or unless such information is made public.”
Any issuer quoted on the OTC Markets should consult with qualified legal counsel concerning the disclosures required by federal and state securities laws.