Fraud Concerns Have Resulted In Stock Exchanges Blocking Listing Of Reg A+ IPOs

Fraud Concerns Have Resulted In Stock Exchanges Blocking Listing Of Reg A+ IPOs

A Wall Street Journal states that fraudulent IPOs have resulted in Nasdaq and the New York Stock Exchange turning away from Reg A+ IPOs.

This might be triggered due to SEC’s suit against LongFin. SEC decided to go after the Longfin Corp. cryptocurrency firm and CEO Venkata S. Meenavalli with fraud charges. SEC claims LongFin and its CEO, designed a crooked Regulation A+ public offering of LongFin shares by falsely representing information in filings submitted to the SEC. The admonitions claim Meenavalli performed accounting scam by recording more than $66 million in false revenue, almost 90% of its total reported revenue in 2017.

Regulation A+ (Reg A+) is an alternative to a traditional IPO, which makes it easier for smaller, early-stage companies to access capital. Through Reg A+, a U.S. or Canadian company is afforded the opportunity to raise up to $50 million in a 12-month period using a “public solicitation” of its shares and have the offering be exempt from SEC and state securities law registration.

Not only do the exchanges have a problem with the mini IPOs, but, the very businesses it was meant to empower are failing too. It’s hard to see Regulation A+ as an option for either investors or businesses any longer. Reg A+ was supposed to break the cycle of IPOs that served only to enrich founders, venture capital, and private equity. It was meant to give investors of all stripes access to early-stage investment opportunities.

Investors so far have little to show for the hundreds of millions of dollars that the U.S. Securities and Exchange Commission says have gone into these IPOs since Reg A+ took effect in 2015. Investment returns are hard to find, the average Reg A+ stock fell 40% in the six months after its mini-IPO and has underperformed the raging bull market surrounding them by nearly 50 percentage points.

Tyler Gellasch, a former SEC staffer has some harsh words for these mini IPOs. He says:

“Many of us were concerned as RegA+ was being developed that it would be a disaster for investors. A few years into this experiment and these results are about as bad for investors as anyone could have predicted. An entire market losing half its value when the rest of the stock market was going through the roof is a massive problem.”