December 3, 2021
Blank Check Reverse Mergers: The SEC Responds to the Del. Chancery
Earlier this year, in In re Forum Mobile, (Del. Ch.; 3/21) Vice Chancellor Laster put the brakes on an effort to revive a defunct Delaware corporation by a promoter of reverse merger transactions. As part of that decision, the Vice Chancellor appointed an amicus curiae to seek input from the SEC concerning federal securities law issues surrounding reverse mergers.
In late October, the SEC responded to VC Laster’s request. This Jim Hamilton blog summarizes the SEC’s response. While the letter addresses a wide range of securities law issues associated with reverse mergers, this excerpt from the blog highlights the specific concerns that the agency expressed surrounding the proposed resurrection of Forum Mobile:
– Because Forum does not appear to have filed any quarterly or annual reports for at least a decade, investors in Forum will not be able to readily obtain publicly available historical or current information about the company, including its financial status, its management, its ownership, or the risks it faces.
– Because Forum is a non-reporting company, it would not be required to file a report regarding any reverse merger that it completes in the future (assuming the reverse merger does not involve the offer and sale of securities).
– Because Forum does not trade on a registered national securities exchange and there is no evidence of intent to seek such listing, it would not need to satisfy the more stringent listing requirements imposed by exchanges for shell companies that combine with private companies in reverse mergers. For example, Forum would not need to comply with a NYSE requirement that a reverse-merger company have produced at least one year of audited financial statements and other material information before listing on the NYSE.
The SEC’s letter also pointed out that recent amendments to Rule 15c2-11 prohibit broker-dealers from publish proprietary quotations for shares issued by Forum on any market tier operated by OTC Markets. Instead, they can now only publish unsolicited quotations on OTC Markets’ Expert Market tier, which are not publicly available.
– John Jenkins