SEC fines 10 microcaps for flawed stock offerings

Dive Brief:

The Securities and Exchange Commission sanctioned 10 microcap companies that it said violated regulations for raising money through securities offerings.
The companies breached Regulation A, which offers limited exemption from SEC registration for early-stage small businesses that meet conditions for disclosure and other criteria while seeking to raise no more than $75 million in public offerings, the SEC said Tuesday. It fined each business up to $90,000.
“Companies which choose to circumvent Regulation A’s requirements by engaging in prohibited conduct or making fundamental changes to their offerings without qualification will face action by the SEC,” Daniel Gregus, director of the agency’s Chicago regional office, said in a statement.

Dive Insight:

Each of the 10 microcap companies secured qualification from the SEC between December 2019 and May 2022 under Regulation A, but then changed their securities offerings in ways that violated terms of their exemption from the more costly and detailed procedures required of larger businesses, the SEC said.

The companies erred by delaying their offerings, increasing the number of shares offered, changing the price of shares or failing to annually update the financial statements for ongoing offerings, according to the SEC.

For example, Verde Bio Holdings, an oil and gas exploration and investment company based in Frisco, Texas, gained SEC qualification under Regulation A to sell 100 million shares at 1 cent per share, the agency said. Between January 26, 2021 and March 15, 2021, the company sold approximately 93 million shares.

Yet Verde Bio did not obtain SEC qualification under Regulation A before selling 907 million shares and raising approximately $9.07 million between March 15, 2021 and June 24, 2021, the SEC said. It fined the company $90,000.

Hemp Naturals Inc., a seller of cannabidiol products based in Sunny Isles Beach, Fla., gained qualification by the SEC on May 22, 2020 to sell common stock, the agency said. The company sold more than 534 million shares and raised approximately $2.4 million from July 8, 2020 until July 6, 2021.

Hemp Naturals violated Regulation A by delaying its offering, changing the offering price for its shares and failing to annually update its financial statements, the SEC said. The agency imposed a $50,000 fine.

“Companies that choose to benefit from Regulation A as a cost-effective way to raise capital must meet its requirements,” Gregus said.