NYSE and Nasdaq Propose Additional Listing Requirements for Reverse Merger Companies
By Michael L. Zuppone, Yariv C. Katz & Keith C. Gartner
Reverse merger companies, which are formed when a public shell company survives a merger with a private operating company, have recently been subject to numerous federal securities fraud lawsuits and Securities and Exchange Commission (SEC) enforcement actions and penalties due to concerns relating to accounting irregularities and other disclosure issues. As a response to these concerns, and in an effort to increase transparency and limit risks to investors, the New York Stock Exchange (NYSE) and The Nasdaq Stock Market LLC (Nasdaq) have each proposed additional listing application requirements for reverse merger companies seeking to list on their exchanges . The proposed sets of rules effectively create a seasoning period prior to listing and generally require that the reverse merger company:
have its equity securities trade in the United States over-the-counter market or on a national or foreign exchange subsequent to the consummation of the reverse merger for a specified period of time prior to listing;
file all required information regarding the reverse merger transaction with the SEC, including audited financial statements;
maintain a minimum stock price of $4 per share for a certain period of time prior to listing; and
file all required reports with the SEC subsequent to the reverse merger during the seasoning period, including certain specified periodic reports.
The NYSE and Nasdaq expect that the seasoning period will increase the integrity of the reverse merger companys financial and operations related reporting and allow auditors and company management to adequately evaluate and address accounting irregularities and internal controls deficiencies. In addition, this period would allow for additional market and regulatory scrutiny of these companies and provide time to identify concerns that could otherwise preclude listing eligibility. The SEC is currently reviewing the proposed listing requirements of each securities exchange and may act on each proposal in September 2011.