11616 Hawthorne Bl., Ste, 206
11824 Daphne Ave.
Hawthorne, Ca 90250
Request for Rulemaking for
Small Corporate Issuers
October 16, 2002
Jonathan G. Katz, Secretary
U. S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Reference: Petition for Action Order and/or Proposed Amendment to current rules - 15C211...
Dear Mr. Katz:
I humbly petition you addressing a mandate issued by Congress in the Small Business Investment Incentive Act of 1980 (SBII) to make it easier for Small Corporations to fund a local business. This Act lead to the creation of SCOR (Small Corporate Offering Registration) Offerings. This authorized the enactment and creation of systems to legally register, and/or exempt from registration, securities for the purpose of selling them and raising capital for small corporations. It also created and streamlined the paperwork to make it simple for issuers, who were not layman, to prepare and file the offering documents for SCOR Offerings. This is only half of the process of raising capital for small corporations.
Small Corporations must then, either, create markets and sell the securities to individuals themselves, or solicit the services of a broker/dealer to create markets and sell the securities. Either way, a potential investor must be made aware of the security, its symbol, and current market pricing (Complete due diligence information). Another concern of a potential investor is the liquidity of their investment. By providing a potential investor with trade activity information of a security, including current and historical pricing, an investor may make a more well informed decision on whether to purchase said security. Close scrutiny of the parties offering the security is also pertinent to the potential investor. If the securities may not be purchased from a regular broker/dealer, a potential investor may question why should they buy securities in a small corporation not even traded by regular broker/dealers instead of other listed securities of reputable companies. While there is nothing wrong with this, it does not help the climate for SCOR Issuers, nor their efforts to raise capital, the true intent of Congress set forth in the SBII Act.
Image and simplicity is key. The more professional an offering is organized, the more credibility is given to the small corporation attempting to raise capital. Thus, if small corporate issuers are able to take advantage of the technologies available to create safe, secure, well informed quotation mediums and electronic trading platforms for which to trade their instruments, this would obviously have a more favorable effect on the potential investor resulting in an beneficial outcome for the small corporation. Successful corporate financing. Before this result can take place and such a medium is built, a Form 211 must be filed. Even if the security is not listed on any national exchange, as is indicative by the instructions on the Form 211:
"Please check the applicable quotation medium(s): OTCBB, PINK SHEETS, OTHER QUOTATION MEDIUM."
Thus, without filing a Form 211, an issuer may not quote its securities on any quotation medium, effectively depriving small corporate issuers of viable means for quoting their securities for the purpose of raising capital, unless they solicit the sponsorship of a broker/dealer. Effectively thwarting the SBII passed by Congress. This undue burden, created by 15C211 on small corporate issuers, to obtain sponsorship from a broker/dealer for the purpose of initiating quotation of any security on any quotation medium must be eliminated. Brokers/Dealers have no incentive to sponsor small corporate issuers' securities if they are prohibited from receiving compensation for such a sponsorship. Most Broker/Dealers will not sponsor or make a market for securities they did not underwrite. And most small corporate issuers cannot afford to pay for underwriting services, another one of the purposes of creating the SCOR Program.
Broker/dealers make their money by seller listed, already known stocks to the public, which they buy at a discount, mark up, and then sell at a profit (the "spread"). They have no natural interest in new, small corporate securities which the public or financial communities may not already be familiar with. Wherein, they also have no vested interest in sponsoring a new security, to which they must also be held liable for performing required due diligence, an added expense which they are not reimbursed. This creates a negative atmosphere for small corporate issuers seeking to obtain sponsorship for their securities even before the introduction of the parties involved.
Small corporate issuers should not be systematically deprived of the opportunity to have their securities quoted on a quotation medium, such as a website, for which potential investors may obtain historical and current trading information and prices, as well as other information to assist them in making a well informed investment decision.
These mediums would be restricted to intrastate trading purposes, not national, thus completely in conformity with SEC rules regarding securities traded on national exchanges. These restricted quotation mediums would follow the regional or local (intrastate) exchange business model, for small corporate issuers, similar to the Pacific Stock Exchange's SCOR Division, which was dismantled, leaving SCOR Issuers underserved in the current securities market. These mediums, through the use of passwords, registrations and other technical mechanism, can be restricted to the locally authorized participants.
PortalVia, Inc. has submitted a Form 211 to Nasdaq (NASD) in accordance with Securities and Exchange Commission (SEC) Rule 15C211(h), a written request to quote a security on the Pink Sheets, which does not constitute a fraudulent, manipulative or deceptive practice as comprehended by said rule.
I submit this letter as a petition, from an issuer of a SCOR Offering (exercising the Intrastate Offering Exemption (Securities Act of 1933, Section 3(a)(11) and (b)), while acting in the capacity of an intrastate dealer, as defined by Section 3(a)(5) of the Securities Act, and conducting an offering of securities for sale in 1 state "only") who filed a Form 211 with NASD for the purpose of initiating a quotation on the Pink Sheets and other quotation mediums (ECN or other proprietary software and hardware platforms for trading), requesting the Commission to make a determination and/or amendment to current statutes.
I am the CEO of PortalVia, Inc. (PV), a satellite/wireless communications corporation located in Hawthorne, CA. I have underwritten a U-7 Scor Offering (DPO) which has been filed with the Securities and Exchange Commission (SEC), as well as Form D. (See included Offering Circular). I have also filed the Form D, U-1, U-2 and U-7 with the State of California, as well as filed and paid the fees associated with the Regional Public Offering (25102(f)) - see included offering circular.
The origin of the Direct Public Offering (DPO) began near the end of Jimmy Carter's Presidency, as now, with the country in a recession. "David Birk, from MIT, was able to prove, rather convincingly, that small businesses were creating almost all the new jobs in America. As now, the big and old Blue Chip companies are the ones laying off workers. Even moreso, as is evident today, it is the large Blue Chip companies deeply intwined in fraud, accounting scandals, and litigation battles, not the small companies.
Unlike on the National Association of Securities Dealers (NASD) OTC Bulletin Board, Issuers are not required to be SEC reporting and current in their reporting requirements for a market maker to quote their securities in the Pink Sheets or Yellow Sheets. Even though PV is not required to do so, we are a fully reporting and compliant corporation. (see enclosed March and June 10Qs)
PV's Ticker Symbol in the Pink Sheets are PLVAP.PK (CUSIP # 736189 AA9 - AB7) for Preferred Series "A" Convertible Bond/Stock, and PLVA (CUSIP # 736189101) for common stock. The Transfer Agent (Margo Ankele) for the securities is Computershare (303) 984-4102. The securities have sold for and have a stated value of $1 and $.25 respectively.
The reason for the submission is to record the historical stock trade transaction information for public reporting purposes and make the information more readily available for current and potential stockholders, thus creating a more and well informed, liquid market and stockholder base.
The first line of the "Form 211 General Instructions" clearly states the form is to be completed "to initiate or resume quotation in the OTC Bulletin Board" Service, the National Quotation Bureau (NQB) "Pink Sheets", or any other comparable quotation medium.
Thus, as rule 15C211 places the responsibility on a Broker/Dealer to obtain and keep in its files, certain information about an issuer before initiating a quote for an issuer, this cannot be said to be an effective measure to prevent fraudulent, deceptive and/or manipulative practices, as is evident in today's markets.
Therefore, since a Broker/Dealer is reliant upon the accuracy of information provided by an issuer, the submission of information, rather directly by the issuer, or indirectly by a Broker/Dealer, via a Form 211, should be allowed and viewed as the same, as the information originates from the same source and will be reviewed with the same scrutiny in either scenario. Unless, in some instances, some securities are treated differently because of the persons filing the documentation, and reviewed with a little more scrutiny under a closer eye or microscope, which I don't think is the case, or furthermore legal.
What's more, Broker/Dealers are specifically prohibited from accepting any remuneration as compensation for filing and quoting (sponsorship of) a security on a Form 211. This does not indemnify the broker/dealer from potential liabilities suffered from losses in securities litigation suits. This does not create an incentive for a broker/dealer to sponsor a Form 211 for issuers, but does create an undue burden on issuers.
Rule 147 of the Securities Act of 1933 specifically addressed the exemption provided by Section 3(a)(11) of Securities Act, as is indicated by the following:
"Among those exemptions provided by Section 3(a)(11) of the Act is for transactions in `any security which is a part of an issue offered and sold oly to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within ... such State or Territory." The legislative history of that Section suggests that the exemption was intended to apply only to issues genuinely local in character, which in reality represent local financing by local industries, carried out through local investment. Rule 147 is intended to provide more objective standards upon which responsible local businessmen intending to raise capital from local sources may rely in claiming the Section 3(a)(11) exemption.
Rule 147 relates to transactions exempted from the registration requirements of Section 5 of the Act by Section 3(a)(11);"
The rule provides an exemption for offers and sales by the issuer only... Section 3(a)(11) of the Securities Act has been interpreted to permit offers and sales by persons controlling the issuer, if the exemption provided by that Section would have been available to the issuer at the time of the offering. See Securities Act Release No. 4434 (December 6, 1961). Controlling persons who want to offer or sell securities pursuant to Section 3(a)(11) may continue to do so ...;
Rule 147 further distinctly specifies which transactions are covered by the "issuer's exemption":
"Offers, offers to sell, offers for sale and sales by an issuer of its securities ... offered and sold only to persons resident and doing business within such state or territory, within the meaning of Section 3(a)(11) of the Act";
Resales of securities offered that are part of an issue offered and sold by an issuer may be made 9 months after the last sale, by the issuer of such securities, only to persons resident within such state or territory. Rule 147(4)(e). While Rule 147(4)(e)(2) addresses dealers satisfying the requirements of Rule 15C2-11 prior to publishing any quotations for a security, submitting quotations for publishing, in any quotation medium, it does not address issuers submitting or publishing quotations.
I respectfully submit, that issuers should be allowed to submit (at least the initial) quotations on Form 211s, but also be held to the strict guidelines adhered to by broker/dealers regarding financials and full current public disclosure. In this way, there is direct accountability on behalf of the issuer, less opportunity for improprieties in investment banking relations resulting from sponsorship of Form 211, increased trading volume resulting ability of small issuer to create a market for his/her securities, and economical growth due to new job creations directly resulting from successful endeavors to raise capital from local markets.
The Small Business Investment Incentive Act of 1980 (SBIIA), which supported Dr. Birk's findings that small business were creating most jobs, was passed specifically for the purpose of helping small businesses.
A big ingredient of SBIIA was a Congressional "instrument", to the SEC to make it easier for small businesses to raise money from the public. In 1982, the SEC passed Regulation D. The revolutionary Section of Regulation D, that makes DPOs possible, is Rule 504. In 1989, state regulators announced SCOR (Small Company Offering Registration), a system developed for 504 (DPO) Offerings. Form U-7 was also introduced and is currently accepted in 45 states as the preferable vehicle to register securities in a 504 Offering.
Allowing issuers to file Form 211, at least for the initial quotation of securities, would make it easier for small businesses to raise money. As the underwriter of a few offerings, the obtainer of a few CUSIPs and a Transfer Agent, as well as the payer of the associated fees, this task is not short, easy, nor cheap for a small issuer. Much more, the criminal deterrent of federal prison sentences for fraudulent dealings is sufficient to deter wrong doers. But, after all the checks and balances inherent in these processes, there still is the hurdles of obtaining sponsorships of the Form 211, in a security when no broker/dealer has an obligation or incentive to sponsor any such type of said security. Broker/Dealers are not Certified Public Accountants (CPAs) and cannot be held accountable for accounting and securities fraud, only stock manipulative schemes which are perpetrated by broker/dealers anyway.
To summarize, including upon written request from the issuer, there are enough checks and balances to prevent issuers from conducting fraudulent, deceptive, or manipulative acts or practices without barring issuers from directly submitting the initial Form 211 and initiating quotations on securities. This view is also supported and outlined by counsel in the attached comment and proposed revision to SEC Rules 15C211 and 17a-4 document. Please respond accordingly by stating the SEC's position, issue action order, and/or amend current rules.. Thank you, sincerely, for your time, consideration and cooperation.
In closing, I will summarize Alan Greenspan, "Unless the curve is towards a fair ecosystem, we cannot achieve our full potential...The focus should be on the functioning of our ecosystem... Corporate governances broke down...due to Once-in-lifetime frenzy." Not because of fraud or corruption related to Small Corporate America.
Most respectfully submitted,
Bill Blair, CEO
Cc: Daniel Fisher
Harvey L. Pitt
Formal written request to: Bill Blair, 11824 Daphne Ave.,Hawthorne,Ca 90250