Category Archives: Finance

Understanding Public Companies – Sentinel Financial Education Series

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies. But do you really understand what the market is about? What public companies are? How they are traded?

The Sentinel Financial Education Series is designed to answer questions, bring understanding, inform and educate. So…

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

Public Companies

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies.

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

A private company also can become subject to public reporting requirements by merging with a public shell company.  This process is called a reverse merger.  As with any investment, investors should proceed with caution when considering whether to invest in reverse merger companies.

As mentioned, we view companies as public if they are subject to public reporting obligations.  There are instances, however, where the securities of a company that does not regularly report business and financial information to the public are nonetheless traded on smaller public markets.  Investing in these companies is riskier as there can be little public information to allow investors to make an informed investment decision.

Transparency and Continuing Disclosures

A public company’s disclosure obligations begin with the initial registration statement that it  files with the SEC.  But the disclosure requirements don’t end there.  Public companies must continue to keep their shareholders informed on a regular basis by filing periodic reports and other materials with the SEC.  The SEC makes these documents publicly available without charge on its EDGAR website.  The filed documents are subject to review by SEC staff for compliance with federal securities laws. 

Following are some of the reports that may be filed by U.S.-based public companies.  Foreign companies that file reports with the SEC may file different types of reports.

  • Quarterly Reports on Form 10-Q.  Public companies must file this report for each of the first three quarters of their fiscal year.  (After the fourth quarter, public companies file an annual report instead of a quarterly report.)  The quarterly report includes unaudited financial statements and information about the company’s business and results for the previous three months and for the year to date. The quarterly report compares the company’s performance in the current quarter and year to date to the same periods in the previous year.
  • Current Reports on Form 8-K.  Companies file this report with the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or high-level officer), and preliminary earnings announcements.  For more, see our How to Read an 8-K.
  • Proxy Statements.  Shareholder voting constitutes one of the key rights of shareholders.  They may elect members of the board of directors, cast non-binding votes on executive compensation, approve or reject proposed mergers and acquisitions, or vote on other important topics.  Proxy statements describe the matters to be voted upon and often disclose information on the company’s executive compensation policies and practices.
  • Additional Disclosures.  Other federal securities laws and SEC rules require disclosures about a variety of events affecting the company.  These include proposed mergers, acquisitions and tender offers; securities transactions by company insiders, and beneficial ownership by a person or group that reaches or exceeds five percent of the company’s outstanding shares.    

Public Disclosures Protect Investors

Our federal securities laws are based on public disclosure by companies of meaningful business, financial and other information.  Public disclosure by companies serves to advance the mission of the SEC.

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Five Questions To Ask Before Investing With A Stockbroker

Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.

Question 1: Is the seller licensed?

Con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Smart investors check the background of anyone promoting an investment opportunity, even before learning about opportunity itself. While it’s usually safe to trust larger firms with more established reputations – relying on their internal oversight to keep you safe – even the biggest and best of brokerages have loosed wolves among their flocks, albeit unknowingly.

Researching brokers: Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.

Researching investment advisers: The Investment Adviser Public Disclosure website provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms.

Researching SEC actions: The SEC Action Lookup – Individuals allows you to look up information about certain individuals who have been named as defendants in SEC federal court actions or respondents in SEC administrative proceedings.

If you are not sure who to contact or have any questions regarding checking the background of an investment professional, call the SEC’s toll-free investor assistance line at (800) 732-0330.

Question 2: Is the investment registered?

Any offer or sale of securities must either be registered with the SEC or exempt from registration. Registration is best because it provides investors with access to key information about the company’s management, products, services, and finances. Smart investors always check whether an investment is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.

Question 3: How do the risks compare with the potential rewards?

The potential for greater returns comes with greater risk. Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes. Investments with greater risk may offer higher potential returns, but they may expose you to greater investment losses. Keep in mind every investment carries some degree of risk and no legitimate investment offers the best of both worlds. Many investment frauds are pitched as high return opportunities with little or no risk. It’s usually best to ignore these so-called opportunities. If you truly believe you smell a fraud, report them to the SEC, your local state securities licensing agency or state’s attorney general’s office.

Question 4: Do you understand the investment?

Many successful investors follow this rule of thumb: Never invest in something you don’t understand. Be sure to always read an investment’s prospectus or disclosure statement carefully. If you can’t understand the investment and how it will help you make money, ask a trusted financial professional for help. If you are still confused, you should think twice about investing.

This particular question, “Do you understand the investment?” has broader application. Savvy investors apply it across the investment spectrum, not just in their stock market considerations. Real estate, cryptocurrency, NFTs, the bond and commodities futures markets are all unique in their own ways, all offering potential rewards, all presenting their own potential pitfalls. If you don’t understand them, don’t invest in them until you do. Keep safe!

Question 5: Where can you turn for help?

Whether checking out an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a great advantage when it comes to investing wisely. Make a habit of using the information and tools on available on reputable public sites, and take advantage of the securities regulators’ websites. If you have a question or concern about an investment, get a second opinion from a different broker or investment advisor. Remember, too, that you can contact the SEC, FINRA, or your state securities regulator for help in a crunch.

A final piece of advice: Don’t be afraid to ask questions, of the person offering the investment and others.

Any broker or advisor who fears questions, or deflects without actually answering them, either doesn’t understand the investment or doesn’t want you to understand it. The most successful Ponzi scheme of all time (excepting Social Security), was run by Bernie Madoff. A large part of his success was found in his practice of scaring investors away from asking questions by implying that if they didn’t trust him they could take their money elsewhere.

Don’t be afraid to ask your questions, and don’t be afraid to leave if you don’t get, don’t understand – or don’t like – the answers.

February 8, 2022 – Mike Spillan, Editor

Federal Trade Commission and Justice Department Move to Strengthen Ties

Agencies Launch Joint Public Inquiry Aimed at Modernizing Merger Guidelines to Better Detect and Prevent Anticompetitive Deals at the Cost of Privacy – January 2022

WASHINGTON – The Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division launched a joint public inquiry aimed at strengthening enforcement against illegal mergers.

According to the FTC, recent evidence indicates that many industries across the economy are becoming more concentrated and less competitive – imperiling choice and economic gains for consumers, workers, entrepreneurs, and small businesses. The agencies claim that these problems are likely to persist or worsen due to an ongoing merger surge that has more than doubled merger filings from 2020 to 2021. To address mounting concerns, the agencies are soliciting public input on ways to modernize federal merger guidelines to better detect and prevent illegal, anticompetitive deals in today’s modern markets.

“Illegal mergers can inflict a host of harms, from higher prices and lower wages to diminished opportunity, reduced innovation, and less resiliency,” said FTC Chair Lina M. Khan. “This inquiry launched by the FTC and DOJ is designed to ensure that our merger guidelines accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals. Hearing from a broad set of market participants, especially those who have experienced first-hand the effects of mergers and acquisitions, will be critical to our efforts.”

“Our country depends on competition to drive progress, innovation, and prosperity,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. “We need to understand why so many industries have too few competitors, and to think carefully about how to ensure our merger enforcement tools are fit for purpose in the modern economy.”    

Competition is critical to the success of the economy. It ensures that Americans have the freedom to choose among different suppliers and different employers. When businesses face competition, it spurs them to improve their products, develop new ones, and lower prices. Mergers can reduce choices for consumers, workers, and other businesses, leaving them increasingly dependent on larger and more powerful firms that have purchased greater power to dictate the terms of their deals. To protect competition and prevent increased consolidation, Congress passed a series of antitrust laws and authorized the FTC and the Justice Department to enforce them.

The antitrust laws charge the FTC and the Justice Department with preventing mergers that may substantially lessen competition or tend to create a monopoly. Merger guidelines are frameworks for the analysis of mergers under the antitrust laws. The Justice Department first published merger guidelines in 1968, with the goal of providing transparency into the standards it applied in reviewing mergers. Since then, the agencies have published a number of updates, generally specified by whether the transaction is considered horizontal (within the same market) or vertical (within the same supply chain). Although the guidelines identify some of the competitive harms mergers present, markets may fall outside the frameworks under the current approach.

The public inquiry launched today seeks comments on developments in the modern economy and new evidence of mergers’ effects on competition to inform potential revisions to the guidelines. The agencies encourage the public, including market participants, government entities, economists, attorneys, academics, unions, employees, farmers, workers, businesses, franchisees, and consumers, to share feedback, evidence, and ideas that may inform revisions to the guidelines. Some of the specific areas of inquiry on which the agencies are seeking public input and information include:

  • Purpose and scope of merger review: The agencies seek information on whether the guidelines explain and implement the statutory ban on transactions that “may” substantially lessen competition or tend to create a monopoly, and what harms are contemplated by those standards. The agencies further seek input on whether distinctions between horizontal and vertical transactions reflected in the guidelines should be revisited in light of trends in the modern economy.
  • Presumptions that certain transactions are anticompetitive: The guidelines identify certain market circumstances that justify a presumption of competitive harm based on market concentration. The agencies seek information on whether concentration thresholds should be adjusted to improve the efficiency and effectiveness of enforcement, whether alternative metrics or qualitative factors should also trigger presumptions of competitive harm, and evidence regarding the accuracy of such presumptions.
  • Use of market definition in analyzing competitive effects: The agencies seek input on potential updates to the guidelines’ market definition analysis to better account for non-price competition. They also seek to input on when direct evidence of a transaction’s likely competitive effects, such as evidence of head-to-head competition, may eliminate the need for a separate market definition exercise.
  • Threats to potential and nascent competition: The agencies seek input on potential updates to the guidelines’ discussion of potential and nascent competitors, which may be key sources of innovation and competition.
  • Impact of monopsony power, including in labor markets: The agencies seek input on how to address the issue of buyer power in more detail in the guidelines. Labor markets are a key example of buyer power, and the agencies seek information regarding how the guidelines should analyze labor market effects of mergers.
  • Unique characteristics of digital markets: The agencies seek information on how to account for key areas of the modern economy like digital markets in the guidelines, which often have characteristics like zero-price products, multi-sided markets, and data aggregation that the current guidelines do not address in detail.

The Request for Information is available at: https://www.regulations.gov/docket/FTC-2022-0003/document.

The comment period is open for 60 days. Comments can be submitted to regulations.gov and must be received no later than Monday, March 21, 2022. The information will be used by the agencies to consider updates and revisions to the guidelines. If such revisions are contemplated in light of the evidence received and the agencies’ independent research, the agencies will publish proposed guidelines for public comment.

In a press event, Chair Lina M. Khan gave remarks as did Assistant Attorney General Jonathan Kanter. Commissioners Noah Joshua Phillips and Christine S. Wilson issued a statement.

Editorial Note: The Sentinel is deeply concerned about the possibility of any increased governmental “cooperation” when it represents a high likelihood of individual rights being compromised, especially on such a significant scale, and encourages the Reader to examine the intended operational changes and, if you are concerned as well, visit the Public Comment site at: https://www.ftc.gov/policy/public-comments.

Original source material from this post can be found here.

Supreme Court Hears States Beg For Your Bucks

Online shoppers have gotten used to seeing that line on checkout screens before they click “purchase.” But a case before the Supreme Court could change that.

At issue is a rule stemming from two, decades-old Supreme Court cases: If a business is shipping to a state where it doesn’t have an office, warehouse or other physical presence, it doesn’t have to collect the state’s sales tax.

That means large retailers such as Apple, Macy’s, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from customers who buy from them online. But other online sellers, from 1-800 Contacts to home goods site Wayfair, can often sidestep charging the tax.

More than 40 states are asking the Supreme Court to reconsider that rule in a case being argued Tuesday. They say they’re losing out on “billions of dollars in tax revenue each year, requiring cuts to critical government programs” and that their losses compound as online shopping grows. But small businesses that sell online say the complexity and expense of collecting taxes nationwide could drive them out of business.

Large retailers want all businesses to “be playing by the same set of rules,” said Deborah White, the president of the litigation arm of the Retail Industry Leaders Association, which represents more than 70 of America’s largest retailers.

For years, the issue of whether out-of-state sellers should collect sales tax had to do mostly with one company: Amazon.com. The online giant is said to account for more than 40 percent of U.S. online retail sales. But as Amazon has grown, dotting the country with warehouses, it has had to charge sales tax in more and more places.

President Donald Trump has slammed the company, accusing it of paying “little or no taxes” to state and local governments. But since 2017, Amazon has been collecting sales tax in every state that charges it. Third-party sellers that use Amazon to sell products make their own tax collection decisions, however.

 

The case now before the Supreme Court could affect those third-party Amazon sellers and many other sellers that don’t collect taxes in all states — sellers such as jewelry website Blue Nile, pet products site Chewy.com, clothing retailer L.L. Bean, electronics retailer Newegg and internet retailer Overstock.com. Sellers on eBay and Etsy, which provide platforms for smaller sellers, also don’t collect sales tax nationwide.

States generally require consumers who weren’t charged sales tax on a purchase to pay it themselves, often through self-reporting on their income tax returns. But states have found that only about 1 percent to 2 percent actually pay.

States would capture more of that tax if out-of-state sellers had to collect it, and states say software has made sales tax collection simple.

Out-of-state sellers disagree, calling it costly and extraordinarily complex, with tax rates and rules that vary not only by state but also by city and county. For example, in Illinois, Snickers are taxed at a higher rate than Twix because foods containing flour don’t count as candy. Sellers say free or inexpensive software isn’t accurate, more sophisticated software is expensive and that collecting tax nationwide would also subject them to potentially costly audits.

“For small businesses on tight margins, these costs are going to be fatal in many cases,” said Andy Pincus, who filed a brief on behalf of eBay and small businesses that use its platform.

 

The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue. South Dakota’s governor has said the state loses out on an estimated $50 million a year in sales tax that doesn’t get collected by out-of-state sellers.

In 2016 the state passed a law requiring those sellers to collect taxes on sales into the state, a law challenging the Supreme Court precedents. The state, conceding it could win only if the Supreme Court reverses course, has lost in lower courts.

South Dakota says the high court’s previous decisions don’t reflect today’s world. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer. At the time, the court was concerned in part about the burden collecting sales tax would place on the catalog company. The court reaffirmed that ruling in 1992.

It’s unclear how the justices might align on the question this time. But three justices — Neil Gorsuch, Clarence Thomas and Anthony Kennedy — have suggested a willingness to rethink those decisions. Kennedy has written that the 1992 case was “questionable even when decided” and “now harms states to a degree far greater than could have been anticipated earlier.”

“Although online businesses may not have a physical presence in some states, the Web has, in many ways, brought the average American closer to most major retailers,” he wrote in suggesting the days of inconsistent sales tax collection may be numbered. “A connection to a shopper’s favorite store is a click away regardless of how close or far the nearest storefront.”

Iran’s Rial Hits New Record-Low On Fears Administration Will Alter Nuclear Deal

Iran’s currency fell more than six percent against the US Dollar in Sunday, hitting a record low, as fears of a US withdrawal from the nuclear deal negotiated by former President Barack Obama continues to drive speculation.

The rial reached 55,200 to the dollar at the close on the open market — a drop of nearly a third in the past six months — according to the Financial Informing Network, considered the most reliable for fluctuations in the free rate.

“There is a clearly an increase of people buying dollars because they think the United States will pull out of the nuclear deal,” said the head of an exchange office in Tehran, on condition of anonymity.

The gap with the government’s official rate, which stood at 37,814 on Sunday, has continued to widen, threatening a return of high inflation which the government has battled to bring under control.

“The government can’t do anything when there is this much panic. If the US exits the agreement, the Iranian currency could collapse even further and reach 70,000 to the dollar,” said the exchange dealer.

The head of the central bank, Valiollah Seif, and Economy Minister Masoud Karbasian were summoned to parliament to discuss the issue last Monday.

Long queues have been seen outside exchange offices for weeks as uncertainty mounts over the nuclear deal which Iran reached with world powers in 2015.

President Donald Trump has threatened to walk away from the deal and reimpose sanctions by May 12 — the next deadline for confirming US involvement — unless new restrictions are placed on Iran’s nuclear and missile programmes.

The rial stood at around 40,000 to the dollar in October, when Trump said he would no longer certify Iran’s compliance with the nuclear deal, and has been falling steadily since.

Iran’s government took drastic measures in February to stem the decline, arresting unlicenced exchange dealers and freezing speculators’ accounts, but they have had little impact.

President Hassan Rouhani, who has staked his legacy on trying to revive the economy by rebuilding ties with the West, sought to play down the decline earlier this year, saying Iran was bringing in plenty of dollars through oil sales.