Ironridge Global Partners LLC has agreed to pay $4.4 million in disgorgement to settle claims that it incurred violations of the Exchange Act when its subsidiary Ironridge Global IV distributed billions of microcap shares without being a registered broker.
According to the SEC order, Ironridge violated Section 15(a) of the Exchange Act, which “prohibits a broker or dealer to effect transactions in any security without registering with the Commission,” and Section 20(b) of the Exchange Act, which “makes it unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do under the Exchange Act or any rule or regulation thereunder through or by means of any other person.”
The San Francisco-based firm’s subsidiary, Ironridge Global IV, sold shares of 28 microcap issuers, typically driving down share prices while increasing the number of shares received, through a price protection formula which locked in discounts regardless of stock price shifts.
In some cases, more shares were issued whenever stock prices fell.
For firms like Ironbridge, this can be a way of securing profits without incurring almost any risk. However, the SEC’s main objection with the behavior is that Global IV is not a registered firm.
In agreeing to the terms of the settlement neither Ironbridge nor Global IV have made any admission of guilt. The disgorgement included in the agreement relates to fees charged to microcap issuers, which SEC claims were similar to typical broker-dealer fees.
According to the SEC order, “Global IV’s operation as an unregistered dealer in securities by engaging in serial underwriting activity, providing related investment advice, and receiving and selling billions of shares in connection with self-described financing services for domestic microcap stock companies (“microcap issuers”) explicitly designed to utilize the registration exemption contained in Section 3(a)(10) of the Securities Act of 1933.”
“As part of its business model, Ironridge designed and openly promoted a liabilities for equity or LIFE financing program, through which Ironridge arranged to have Global IV purchase outstanding claims from microcap issuers’ creditors and then settle those claims through Section 3(a)(10) exchanges. Under the resulting settlements, Global IV received steeply discounted shares, which Global IV subsequently sold at the direction of Ironridge’s principals,” the SEC order explains.
By enabling issuers to release shares without registering them with the commission, Ironbridge’s LIFE financing program allowed it to receive and sell nearly “5.5 billion shares of the issuers’ common stock,” which led to net profits of about $22 million.
Section 3(a)(10) of the Securities Act of 1933 exempts securities issued in exchange for “bona fide outstanding claims” in court-approved transactions. Ironbridge’s subsidiary used litigation to generate unrestricted stock which would then be sold by Global IV.
Ironbridge tried to contest the SEC’s claims, alleging, among other things, that the case violated its right to a jury trial, but its various attempts were unsuccessful, and the firm will now have to pay the multi-million dollar disgorgement to resolve the Commission’s allegations.
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