When Michael Siegel, CEO of EcoloCap Solutions Inc. (ECOS) , signed an agreement last year to sell convertible notes to Asher Enterprises Inc., he knew the money could dilute his shareholders, but he had no idea that months later the agreement would keep his company from completing a 1-for-2,000 reverse share split.
But a Sept. 16 letter from the Financial Industry Regulatory Authority says that the agreement between EcoloCap and microcap financier Asher and a 2013 SEC enforcement action against Asher president Curt Kramer caused Finra to deny the fairly common corporate action.
The denial could be a sign that Finra is now using more discretion and doing more due diligence when considering even the most common corporate actions of microcap companies.
A securities lawyer who has had at least 10 such applications before Finra in the last three months says the securities industry regulator is moving in a more deliberate fashion.
"It doesn't make any difference whether it was a name change, a ticker symbol or reverse or forward splits. Finra is looking at these things more deeply," the attorney said. "They are looking at who the officers are, who the directors are. It doesn't matter what kind of application is being considered. Companies that have solid balance sheets won't have problems, but companies that are shaky are going to be looked at closely."
Finra is responsible for regulating broker-dealers and transfer agents and for tracking trades that take place on domestic securities exchanges and OTC Markets Group Inc.'s (OTCM) platforms, where a substantial number of microcap stocks are listed.