SEC Charges Prosper E. Beyond Moore And His Company Prosperity Investments & Solutions, LLC With Engaging In A Ponzi Scheme And Affinity Fraud Targeting Nigerian-Americans

On January 18, 2024, the Securities and Exchange Commission (SEC) charged Loganville, Georgia resident Prosper E. Beyond Moore and his controlled entity, Prosperity Investments & Solutions, LLC ("Prosperity"), with defrauding numerous investors from the Nigerian-American community, who share Moore's religious background.

Case Summary

From around October 2021 to March 2023, Prosperity Investments & Solutions, LLC ("Prosperity") and its founder, Prosper E. Beyond Moore ("Moore"), raised over $1.4 million from more than 60 individual investors. The defendants promoted Prosperity as a reputable and substantial financial organization capable of providing investors with monthly profits of 50% through a diverse array of investments.

Contrary to these claims, the defendants used investor funds to pay other investors and cover personal expenses. To attract more investments and retain existing ones, they fabricated false account statements showing weekly returns exceeding 10% and monthly returns exceeding 40%. The defendants were aware that the invested money was not being used to generate the returns shown on the account statements. In reality, Prosperity did not invest most of the funds it received from investors. When investments were made, they resulted in losses exceeding $67,000.

Many investors were members of Moore's church, while others learned about Moore's offerings through religious affiliations within the Nigerian-American community.

Violations

Through the conduct described above, Moore and Prosperity have engaged in, and unless restrained and enjoined by this Court, will continue to engage in actions and practices that constitute violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”) as well as Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder.

Defendants

1. Prosper E. Beyond Moore

Prosper E. Beyond Moore, age 27, resides in Loganville, Georgia. During the relevant period, he conducted business as Prosperity Investment & Solutions, LLC, previously known as Prosperity, Investments & Lending, LLC.

Moore does not hold any professional licenses and has never been associated with a Commission-registered broker-dealer or investment adviser. He has not received financial or investment education from any accredited university or institution and lacks experience working with any company in the financial or investment industry.

2. Prosperity Investments & Solutions, LLC

Prosperity Investments & Solutions, LLC is a Georgia corporation with its principal place of business in Winder, Georgia. Moore incorporated Prosperity on October 20, 2021, and serves as its registered agent and organizer. He is responsible for all business operations and decisions of Prosperity. Prior to August 26, 2022, the company operated under the name Prosperity, Investments & Lending, LLC.

Facts Of The Case

1. Defendants’ Solicitation Efforts

Prosperity was promoted to potential investors through social media accounts and a website, all of which were created, controlled, and authorized by Moore. The defendants specifically targeted individuals who, like Moore, identified as Christian and were of Nigerian descent.

Many of their investors were members of Moore's church or learned about Prosperity through religious networks. For instance, one investor, a preacher, discovered Prosperity through an online group called "Jesus Online."

The defendants leveraged shared religious beliefs to attract and retain investors, including biblical quotes and assurances in their communications that they were "trusting God that everything will be better than it was before." The website described Prosperity as an "exclusive investing and lending platform," claiming it provided "up to 50% profit of your investment MONTHLY" and a new source of passive income, allowing investors more time for their personal interests.

Prosperity's website allowed investors to create client accounts and offered investment opportunities with a minimum amount of $5,000 in one of three programs:

a. Silver Investment

With a lock-in period of one month, it offered up to 50% profit at the end of each 30-day investment period and charged a 10% investment fee deducted from the total profits.

b. Gold Investment

With a lock-in period of three months, it offered up to 50% profit at the end of each 30-day investment period and charged a 7% investment fee deducted from the total profits.

c. Platinum Investment

With a lock-in period of twelve months, it offered up to 50% profit at the end of each 30-day investment period and charged a 5% investment fee deducted from the total profits.

A "buy it now" button on the website provided a link with instructions for investors to send funds. In many cases, defendants sent a confirmation email with payment instructions to investors who had applied for the program through the website.

2. The Investment Contracts

After receiving an investor’s funds, the defendants issued an “Investment Agreement Contract” to each investor through the website and email. The agreement allowed Prosperity to use the invested capital in any way they deemed fit, including but not limited to trading or investing in stocks, ETFs, options, futures, mutual funds, real estate, businesses, organizations, and other entities.

The agreement also stated that investors would not have access to their funds during the selected investment period. According to the agreement, Prosperity would provide weekly investment profit growth updates corresponding to the investment programs or services. Investors could expect the delivery of their funds, capital, and profits within 5-10 business days after the last day of their pre-established investment period. Additionally, Prosperity was entitled to deduct a specified investment fee percentage from the investor’s profits and promised returns of up to 50% on the invested capital.

Between October 2021 and September 2022, Prosperity collected over $1.4 million in cash investments from more than 60 individual investors, with most choosing the Gold Investment program. The funds were pooled and deposited into accounts controlled by the defendants. Prosperity did not file any registration statement with the Commission for its securities offerings. The defendants did not verify the financial circumstances of the investors to whom they sold securities. They only collected basic information such as names, email addresses, mailing addresses, and desired investment amounts from prospective investors and did not determine whether any of the investors were accredited. Many of the investors to whom the defendants sold securities were unaccredited.

3. Defendants’ Fraudulent Investment Scheme

a. False Statements to Prospective Investors

In their promotional materials, the defendants falsely portrayed Prosperity as a large and reputable financial organization with a diverse portfolio of highly profitable investments. For instance, videos posted on Prosperity’s Instagram and Facebook pages claimed that an “elite team of investors” from a “certified U.S. financial institution” would use their expertise to generate significant profits for investors. The defendants also told prospective investors that Prosperity held a "diverse range of investments" including, but not limited to, stocks, ETFs, options, futures, mutual funds, real estate, businesses, organizations, and various products.

Contrary to these claims, Moore was the only person managing the investment funds, and he had no formal training or experience in the securities industry. The defendants transferred some investor funds to brokerage accounts in Moore’s name, where he had exclusive trading authority, and traded stocks. These trades were largely unsuccessful, resulting in total losses of at least $67,000. No other investments were made with investor funds.

The defendants held no other assets that could generate returns for investors. In fact, they diverted some investor funds for Moore’s personal expenses. To keep the scheme afloat, the defendants took out a loan from an online lender to honor existing investors’ redemption requests and used new investor funds to pay existing investors. Despite this, the defendants continued to solicit funds from new investors by advertising that “Prosperity’s elite team of investors will work diligently to invest your capital and bring you back 50% return every month.”

b. Fabricated Performance Statements

To create the illusion that they were successfully investing in securities and making profits, the defendants generated recurring statements and "congratulations" letters. These documents, sent via email and U.S. mail, showed the purported growth of each investor's capital, frequently indicating weekly returns exceeding 10% and monthly returns exceeding 40%. The information in these letters and reports was entirely false.

The investment growth percentages depicted were fabricated, with no actual profits being made apart from the investors' initial contributions. The defendants sent these recurring email updates to investors, falsely touting the profitability of Prosperity's investments even during periods when no profits were made and no investment activities occurred. For example, several investors were told they had earned 45% returns between May 2, 2022, and June 3, 2022, despite no transactions occurring in Moore's brokerage accounts during that time, and the account balances remaining unchanged.

The defendants knew that investors would rely on these fabricated statements to reinvest their alleged profits with Prosperity. According to the investment contract terms, investors could withdraw their principal, profits, or both, minus Prosperity's fee, at the end of each investment period, or they could choose to reinvest their profits.

Several investors increased their investments or authorized reinvestment after receiving these fabricated performance statements.

c. False Excuses in Response to Investor Complaints

Beginning in mid-2022, the defendants were unable to pay investors whose contract terms had ended and who sought the return of their capital. Despite this, they continued to solicit new investors without informing them that Prosperity was unable to fulfill the terms of existing investment contracts. They also did not disclose this inability to existing investors.

To generate the funds necessary to return investor capital, the defendants obtained a $50,000 loan from an online lender, which they did not disclose to prospective investors. Prosperity’s website and social media accounts continued to claim that investors could expect monthly returns of up to 50%. Additionally, the defendants continued to issue fictitious performance statements to existing investors without revealing the loan or Prosperity’s failure to generate any revenue.

To explain delayed payments to concerned investors, the defendants fabricated a variety of excuses. They told some investors that the delays were due to lengthy closures of financial institutions for public holidays. They also claimed that the delays were due to efforts to grow Prosperity into a larger and more profitable investment company, including hiring additional personnel and complying with governing rules and regulations.

The defendants sent emails to investors stating that Prosperity was "in the process of hiring more accountants to handle the increased demand of clients and transactions," had "recently added new customer services representatives to [its] team" to handle customer calls, and would "follow up with the account managers" to explain changes to its investment plans. These emails assured investors that the "Accounting and Treasury Departments" and an "Executive Board" were working diligently to deliver profit checks. In reality, Moore was conducting all of Prosperity’s business operations and never hired additional personnel.

d. Targeting of Christian and Nigerian Communities

The investor pool was predominantly composed of individuals who identified as Christian and of Nigerian descent. Many of these investors were members of Moore's church or became aware of his offerings through religious networks. For instance, one investor, a preacher, mentioned that he and two other investors, also preachers, attended the same high school in Nigeria and discovered Prosperity through an online group called "Jesus Online."

The defendants appeared to leverage shared religious beliefs to attract and retain investors. Some communications from Moore included biblical quotes and assurances that they were "trusting God that everything will be better than it was before."

Claims For Relief

I. Violations of Sections 5(a) and 5(c) of the Securities Act

The defendants offered and sold securities, including promissory notes, using interstate transportation, communication, or mail. At the time of these offers and sales, no registration statement was in effect for the securities.

By the foregoing actions, the defendants have violated, and unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act.

II. Violations of Section 17(a)(1) of the Securities Act

Between October 2021 and March 2023, the defendants, in the offer and sale of the securities described herein, used interstate transportation, communication, and mail to directly and indirectly employ devices, schemes, and artifices to defraud purchasers of these securities, as described in detail above. The defendants knowingly, intentionally, and/or recklessly engaged in these fraudulent practices.

While engaging in the aforementioned conduct, the defendants acted with scienter, meaning they had the intent to deceive, manipulate, or defraud, or acted with a severe reckless disregard for the truth.

By the foregoing actions, the defendants have directly and indirectly violated, and unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act.

III. Violations of Section 17(a)(2) and (a)(3) of the Securities Act

Between October 2021 and March 2023, the defendants, in the offer and sale of the securities described herein, used interstate transportation, communication, and mail to directly and indirectly:

Obtain money and property by making untrue statements of material fact and omitting material facts necessary to make the statements, under the circumstances in which they were made, not misleading; and
Engage in transactions, practices, and courses of business that operated, and would operate, as a fraud and deceit upon the purchasers of these securities, as described in detail above.

The defendants have directly and indirectly violated, and unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act.

IV. Violations of Section 10(b) and Rule 10b-5 of the Exchange Act

Between October 2021 and March 2023, the defendants, in connection with the purchase and sale of the securities described herein, used interstate commerce and the mails to directly and indirectly:

Employ devices, schemes, and artifices to defraud;
Make untrue statements of material facts and omit material facts necessary to make the statements made, under the circumstances in which they were made, not misleading; and
Engage in acts, practices, and courses of business that operated as a fraud and deceit upon the purchasers of these securities, as detailed above.

The defendants knowingly, intentionally, and/or recklessly engaged in these fraudulent devices, schemes, and artifices, made untrue statements of material facts and omitted material facts, and engaged in fraudulent acts, practices, and courses of business. In doing so, the defendants acted with scienter, meaning they had the intent to deceive, manipulate, or defraud, or acted with severe reckless disregard for the truth.

By these actions, the defendants have directly and indirectly violated, and unless enjoined, will continue to violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

Prayer For Relief

the Commission respectfully requests:

I. Permanent injunctions preventing the defendants and their officers, agents, servants, employees, and attorneys from violating, directly or indirectly, Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

II. A permanent injunction preventing Defendant Moore from directly or indirectly participating in the issuance, purchase, offer, or sale of any security, provided that such injunction shall not prevent Moore from purchasing or selling securities listed on a national securities exchange for his personal account.

III. An order, pursuant to Sections 21(d)(5) and 21(d)(7) of the Exchange Act and the Court’s inherent equitable authority, requiring the defendants to disgorge all ill-gotten gains or unjust enrichment with prejudgment interest, to fulfill the remedial purposes of the federal securities laws.

IV. An order, pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act, imposing civil penalties against the defendants.

V. An order, pursuant to Section 21(d)(2) of the Exchange Act and/or Section 20(e) of the Securities Act, prohibiting Defendant Moore from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.

VI. Such other and further relief as the Court may deem just, equitable, and appropriate in connection with the enforcement of the federal securities laws and for the protection of investors.

Key Takeaways For Investors

1. Due Diligence is Crucial

Investors should conduct thorough research on the backgrounds and qualifications of those managing their investments. In this case, Moore had no formal training or experience in the securities industry, yet he was entrusted with significant investor funds.

2. Verify Registration and Compliance

Ensure that the investment firm and its offerings are registered with the appropriate regulatory bodies. Prosperity Investments & Solutions did not file a registration statement with the SEC for its securities offerings, a red flag indicating potential non-compliance.

3. Beware of Unrealistic Returns

Promises of exceptionally high returns, such as the 50% monthly profit claimed by Prosperity, are often indicative of fraud. Legitimate investments rarely offer such high returns consistently.

4. Transparency and Communication

Reliable investment firms provide transparent and accurate information. In this case, the defendants provided fabricated performance statements and false excuses for delayed payments, misleading investors about the true state of their investments.

5. Avoid Over-Reliance on Personal Networks

While personal and community networks can be valuable, they should not replace proper due diligence. Many investors in this case were influenced by their shared religious and community ties with Moore, which clouded their judgment.

6. Check for Professional Credentials and Licenses

Verify that the individuals and firms handling your investments hold the necessary licenses and professional credentials. Moore did not hold any professional licenses or have any formal education in finance or investments.

7. Understand Investment Terms and Conditions

Read and understand the terms of the investment contracts thoroughly. Prosperity’s contracts included clauses that gave them broad discretion over the use of funds and restricted investors' access to their capital during the investment period.

8. Monitor Investment Performance Regularly

Regularly review the performance of your investments and verify the accuracy of the statements provided. The defendants in this case issued false statements to give the appearance of profitability.

9. Report Suspicious Activity

If you suspect fraudulent activity, report it to the appropriate authorities. Early reporting can prevent further losses and help regulatory bodies take timely action.

10. Legal Recourse and Recovery

Be aware of the legal recourse available if you fall victim to investment fraud. The SEC's actions in this case include seeking disgorgement of ill-gotten gains and imposing civil penalties, which can aid in the recovery of investors' funds.

Key Takeaways For Financial Market Practitioners and Management

1. Adherence to Regulatory Compliance

Strictly comply with all regulatory requirements, including the registration of securities offerings with the SEC. Failure to do so can result in severe legal consequences and damage to the firm's reputation.

2. Transparency and Integrity

Maintain transparency and honesty in all communications with investors. Fabricating performance statements and misleading investors about the state of their investments are serious violations of trust and the law.

3. Qualified Personnel

Ensure that individuals managing investment funds have the necessary qualifications, licenses, and experience. Employing unqualified personnel can lead to poor investment decisions and legal issues.

4. Ethical Marketing Practices

Avoid making unrealistic promises or guarantees about investment returns. Marketing materials should accurately reflect the risks and potential returns of the investment products offered.

5. Investor Education and Communication

Educate investors about the risks involved in their investments and provide clear, truthful information. Regular, accurate updates on the performance of their investments are essential for maintaining trust.

6. Robust Internal Controls

Implement and enforce strong internal controls to prevent fraud and mismanagement of funds. Regular audits and compliance checks can help identify and mitigate risks early.

7. Conflict of Interest Management

Avoid conflicts of interest, and where they exist, disclose them transparently. In this case, Moore's personal use of investor funds represents a significant conflict of interest.

8. Risk Management Practices

Develop and follow comprehensive risk management strategies. Ensure that investments are made based on sound analysis and that the risks are clearly communicated to investors.

9. Prompt Address of Complaints

Address investor complaints and concerns promptly and transparently. Fabricating excuses for delays, as seen in this case, can lead to loss of trust and legal repercussions.

10. Community and Network Influence

Recognize the potential influence of community and religious networks in investment decisions. Ensure that these connections do not replace proper due diligence and professional advice.

11. Legal and Ethical Accountability

Be prepared to face legal and ethical accountability for actions. Engaging in fraudulent activities can lead to injunctions, penalties, and bans from the industry.

12. Proactive Disclosure of Financial Conditions

Disclose the financial condition of the investment firm, including any loans or financial obligations, to potential and existing investors. Transparency about the firm’s financial health is crucial for investor trust.

13. Continuous Professional Development

Encourage continuous professional development and education to stay updated on best practices, regulatory changes, and market developments. This ensures that the management and staff are well-equipped to handle the complexities of the financial markets.

Gayatri GuptaMay 20, 2024

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

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