Enforcement of FINRA Rule 6490

Copyright (c) 2012 Hamilton & Associates Securites Lawyers

FINRA Rule, 6490, recently enacted in September 2010, requires issuers of equities and debt securities not listed on exchanges to provide timely notice to FINRA of certain corporate actions. These corporate actions include name changes, forward stock splits, reverse stock splits, distributions of cash or securities such as dividends, stock splits and other actions, and rights and subscription offerings. The new Rule codifies the Securities Exchange Act Rule 10b-17. The Rule requires issuers to complete and file a document with FINRA at least 10 business days prior to the record date of the corporate action. FINRA approval must be received prior to the corporate action becoming effective. In addition, FINRA may request additional documents, conduct detailed and selective reviews of the issuer submissions and cause the issuer to delay the announcement of its corporate action. A FINRA review will be triggered if any of the five factors set forth in Rule 6490 are thought to be present:

Enforcement of FINRA Rule 6490 has resulted in significant fees for issuers with securities traded on the OTC Markets, OTCQB, Pink Sheets and OTCBB. FINRA Rule 6490 requires issuers to provide notice to FINRA of certain company-related actions most of which are common in connection with companies who go public in reverse mergers with public shell companies. These actions include corporate name changes and other actions requiring amendments to the issuer's articles of incorporation, dividends and stock splits. Issuers who fail to provide the required notice to FINRA could be subject to a $5,000 fine.

FINRA's ability to charge issuers started in 2010. FINRA primarily oversees broker-dealer member firms, but it also performs certain functions for issuers of over-the-counter securities including those quoted on the OTC Markets OTCQB, Pink Sheets and OOTCBB.

Issuers may be subject to the jurisdiction of FINRA or SEC Rule 10b-17, which requires publicly traded companies to notify FINRA in advance of certain corporate actions including:

i) dividends or other distributions in cash or kind; ii) stock splits or reverse stock splits, dividends, or rights or other subscription offerings; iii) name change; iv) mergers, acquisitions, dissolutions or other company control transactions; and v) bankruptcy or liquidations.

Issuers with securities quoted on the OTCBB, OTC Markets OTCQB or Pink Sheets should determine whether FINRA notice is required before taking these corporate actions. Issuers that pay dividends must ensure notice is provided to FINRA at least 10 days before the dividend record date.

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