SEC Obtains Final Judgment Against Jake Soberal And Irma Olguin, Jr., The Former Co-CEOs of Tech Startup Bitwise Industries

In an action alleging that they provided misleading information about the finances of Bitwise Industries Inc., a private technology services startup headquartered in Fresno, California, the U.S. District Court for the Eastern District of California issued judgments against Jake Soberal and Irma Olguin, Jr., the former co-CEOs, on January 31, 2024.

Case Summary

Plaintiff Securities and Exchange Commission (referred to as the “Commission” or “SEC”) alleges the following:

Action Summary

1. In 2022, Jake Soberal and Irma Olguin, Jr. (collectively known as “Defendants”), who were the co-founders and co-CEOs of Bitwise Industries, Inc., based in Fresno, along with its parent company, BW Industries, Inc. (together referred to as “Bitwise”), raised around $70 million by falsifying documents and deceiving investors. Bitwise provided services such as technology training, software development, and real estate management.

2. During Bitwise’s Series B-2 securities offering in 2022, Defendants deceived investors by making false statements, including exaggerating the company’s financial metrics. To support these false claims, Defendants provided fabricated documents, such as altered bank statements and a fake audit report, to some investors. Approximately 20 investors, including individuals, institutional investors, and venture funds, participated in Bitwise’s Series B-2 offering.

3. Defendants assured investors that Bitwise had substantial revenue and maintained strong cash balances, but this financial stability was a facade. Soberal and Olguin were aware that Bitwise had generated much less revenue than claimed to investors. Additionally, they misrepresented Bitwise’s cash reserves while concealing the company’s frequent cash shortages and struggles to cover operational expenses. Defendants also misled investors about an audit of Bitwise’s financial statements and provided a falsified audit-related document to an investor.

4. The scheme orchestrated by Defendants began to unravel in late May 2023 when Bitwise faced a cash shortage and couldn’t pay its employees. Defendants then disclosed Bitwise’s true financial state to the company’s Board of Directors, which included representatives of major investors. The following day, Bitwise indefinitely furloughed its entire workforce of approximately 900 employees. Shortly after, the Board removed Defendants as co-CEOs.

5. On June 28, 2023, the Board filed for Chapter 7 bankruptcy on behalf of Bitwise Industries, BW Industries, and related entities in the United States District Court for the District of Delaware. These entities are currently undergoing liquidation proceedings.

6. Defendants’ actions, as detailed in this Complaint, constitute violations of federal securities laws’ antifraud provisions. Specifically, Defendants breached Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Section 17(a) of the Securities Act of 1933.

7. The Commission seeks permanent injunctions, disgorgement of unlawfully obtained profits with prejudgment interest, and civil monetary penalties in this action. Additionally, the Commission requests an order restraining Defendants from participating in securities issuance, purchase, offer, or sale, either directly or indirectly, except for personal accounts, and imposing officer and director bars.

Defendants

1. Jake Soberal

Jake Soberal, aged 37, resides in Fresno, California. Soberal co-established Bitwise and served as its Co-Chief Executive Officer until June 2023. Soberal was admitted to the California State Bar in November 2011.

2. Irma Olguin

Irma Olguin, Jr., aged 42, resides in Caruthers, California. Olguin co-established Bitwise and served as its Co-Chief Executive Officer until June 2023.

Related Entities

1. BW Industries, Inc.

BW Industries, Inc. (“BWI”) is a Delaware corporation with its principal place of business in Fresno, California. It is the parent entity of Bitwise Industries. BWI and its securities are not registered with the Commission in any capacity. On June 28, 2023, BWI’s Board of Directors filed a petition for bankruptcy on behalf of BWI, Bitwise Industries, and several other BWI subsidiaries. These entities are currently in liquidation.

Bitwise Industries, Inc. is a California corporation with its principal place of business in Fresno, California. It is a wholly-owned subsidiary and was the operating entity of BWI. Bitwise Industries and its securities are not registered with the Commission in any capacity.

2. Irma Olguin

Irma Olguin, Jr., aged 42, resides in Caruthers, California. Olguin co-established Bitwise and served as its Co-Chief Executive Officer until June 2023.

Factual Allegations

I. Bitwise and its Business

Soberal and Olguin jointly founded Bitwise in 2013. Before co-founding Bitwise, Soberal practiced as an intellectual property lawyer, while Olguin founded multiple other start-ups.

Bitwise operated three core businesses: (1) a “Workforce” division focusing on providing apprenticeship training for technology roles; (2) an “Enterprise Solutions” division delivering project-based systems implementation and software development; and (3) a “Community” division concentrating on developing and managing a commercial real estate portfolio. Its mission aimed to rejuvenate what it termed as “underdog cities” by fostering their technology sector growth.

Soberal and Olguin established and headquartered Bitwise in Fresno. Before its collapse in 2023, Bitwise had announced expansions into other U.S. cities, including Bakersfield, Merced, Toledo, Buffalo, and El Paso.

As co-CEOs, Defendants jointly managed Bitwise. Employees perceived them as joint decision-makers. Broadly, Soberal oversaw Bitwise’s real estate portfolio, while Olguin supervised the technology consulting business. Both were involved in Bitwise’s fundraising activities, communicating with potential investors through various channels like phone calls, emails, and meetings. Major decisions related to Bitwise’s fundraising were jointly discussed and agreed upon by Defendants.

II. Defendants Raised Approximately $70 Million in 2022

In 2022, recognizing Bitwise’s need for additional funding to cover operational expenses, Defendants opted for a “Series B-2” offering, attracting a mix of existing and new investors. During the June to December 2022 period (the “Series B-2 Period”), Bitwise secured around $70 million from institutional, venture, and individual investors in its Series B-2 round. Some investors included social impact funds interested in both financial returns and societal or environmental benefits.

The Series B-2 investors were swayed by Soberal and Olguin’s representations of Bitwise as a growing enterprise with substantial revenue growth, gross margins exceeding 40%, and sizable cash reserves. Many were attracted to Bitwise’s purported potential to build a profitable business while fostering economic growth in underserved areas.

III. Defendants Solicited Investors Through False and Misleading Statements

During the Series B-2 Period, Defendants resorted to numerous false and misleading statements and provided fabricated documents to investors to conceal Bitwise’s dire financial situation.

A. Defendants Misrepresented Bitwise’s Revenue and Gross Margins

In connection with the Series B-2 offering, Defendants furnished investors with financial statements indicating significant, consistent revenue growth for Bitwise. According to these statements, Bitwise achieved $59 million in annual revenue in 2021, with quarterly revenue escalating from $8.4 million in Q1 to $21.6 million in Q4.

The Stock Purchase Agreement for the Series B-2 offering, signed by Olguin on behalf of the company, asserted that the provided financial statements adhered to generally accepted accounting principles (GAAP) and that Bitwise maintained a standard accounting system consistent with GAAP. GAAP compliance is crucial to investors for enabling financial comparisons across companies.

Despite these assurances, Defendants were aware or recklessly disregarded that the financial statements provided were not GAAP-compliant. Before the Series B-2 Period, Bitwise’s finance department employees had alerted Defendants that the reported revenue figures were not GAAP-compliant. Additionally, Bitwise’s external auditor revised the company’s revenue figures downward in April 2022 due to GAAP non-compliance.

Despite warnings, Defendants persisted in providing investors with non-GAAP revenue figures throughout the Series B-2 Period. They prepared Bitwise’s external financial reports themselves, excluding the finance department to deviate from GAAP standards and inflate revenue.

Defendants’ non-GAAP revenue figures were inflated due to the inclusion of impermissible financial line items under GAAP, such as recognizing revenue upfront for long-term deals instead of over the actual earning periods.

Defendants also misrepresented Bitwise’s gross margins to investors. Claiming approximately 47% gross margins in 2021 misled investors into believing Bitwise’s financial stability and growth, when, in reality, Bitwise had negative gross margins.

Defendants’ misrepresentations regarding revenue and gross margins painted a false picture of Bitwise as a rapidly growing, financially robust company, enticing investors with the promise of favorable returns.

B. Defendants Misrepresented Bitwise’s Cash Balances

Throughout the Series B-2 Period, Defendants made false statements regarding Bitwise’s cash reserves, consistently exaggerating its cash balances to appear more financially stable than it was.

Defendants regularly inflated Bitwise’s cash balances, presenting it as having more cash than actual. For instance, financial statements claimed Bitwise never had less than $9.4 million in quarterly cash balances since Q1 2020, with $29.4 million in cash as of March 2022, and over $67 million as of November 2022, all of which were false.

Defendants knew or disregarded Bitwise’s cash shortages, evidenced by repeated instances of unpaid operating expenses until additional funding was obtained. Following Bitwise’s collapse, Defendants admitted to misleading investors by conflating cash with illiquid real estate holdings to inflate cash balances

Defendants went further to fabricate documents, such as sending an investor a falsified Bitwise checking account statement in June 2022 and overstating cash balances.

Despite these misrepresentations, Bitwise struggled to meet basic expenses due to its lower revenue than claimed. Defendants, aware of Bitwise’s cash issues, actively managed payments and concealed loans taken to sustain operations.

Defendants profited personally from Bitwise’s financial struggles, issuing short-term loans to Bitwise and charging significant fees. These self-serving loans were not disclosed to investors, with investor funds being diverted to repay them instead of business operations.

Defendants’ deception regarding Bitwise’s cash balances misrepresented the company’s financial health to investors.

C. Misrepresentation of Bitwise's Audited Financial Statements

Before 2020, Bitwise lacked audited financial statements. In October 2020, Bitwise engaged an external auditor to audit its financial records for the fiscal year 2020.

The auditor's report was issued in April 2022. It significantly differed from the financial statements previously presented by the Defendants. The auditor couldn't verify many of the assets or revenue claimed by Defendants. For instance, the audited statements reduced Bitwise’s total assets from $87 million to $42 million, lowered its revenue from $31 million to $9 million, and raised its net loss from $7 million to $26 million.

During the Series B-2 Period, investors requested Bitwise’s audited financial statements. Due to the gap between the audited and previously provided financial statements, Defendants sought to withhold the audited ones from inquiring investors. In July 2022, four months post-audit completion and submission to Bitwise, Soberal, and Olguin falsely claimed, when questioned by investors, that the audit of the 2020 financial statements was still ongoing, thereby delaying the provision of audited financial statements.

Defendants either knew or recklessly disregarded the falsity of their statements to investors regarding the availability of Bitwise’s audited financial statements. This misinformation was crucial to investors as the audited statements would have unveiled Bitwise’s true financial state, likely dissuading them from participating in the Series B-2 offering.

Defendants fabricated an audited financial statement. In September 2022, one investor, concerned by the absence of audited financial statements, reduced its planned $10 million investment to $5 million. In December 2022, Soberal and the investor discussed the potential additional investment of $5 million. To entice this investment, Soberal and Olguin agreed to falsify the audited financial statements to enhance Bitwise’s financial image. Soberal then misrepresented that the audit was recently completed and attached a document he claimed was the audited financial statement.

The document sent by Soberal to the investor was fraudulent, dated December 1, 2022, while the actual audited financial statements were from April 7, 2022. The fabricated document significantly deviated from the authentic audited financial statements. It inflated Bitwise’s total assets and revenue while minimizing its net loss. Following receipt of the fake audited financial statements, the investor injected an additional $5 million into Bitwise’s Series B-2 offering.

IV. Soberal and Olguin's Scheme Unraveled When They Could No Longer Secure Funding

Despite the mounting financial challenges faced by Bitwise, Soberal, and Olguin persisted in masking the company's true financial status. For instance, in March 2023, they informed Bitwise's Board that, as of December 31, 2022, the company boasted a cash reserve exceeding $77 million.

Even while being aware of Bitwise's actual cash deficits, the defendants continued their quest for funding sources to sustain the company. By early 2023, Bitwise, under Soberal's guidance, procured over $20 million in loans backed by purported company real estate. Soberal presented documents to the lender, seemingly indicating the Board's approval of these transactions. However, the defendants forged the Board's signatures on these documents, and the Board remained unaware of these loans.

On May 28, 2023, the defendants apprised Bitwise's Board of the company's financial turmoil and its inability to meet payroll obligations. During an emergency meeting the subsequent day, the defendants failed to elucidate the whereabouts of the investor funds raised by Bitwise. Additionally, they disclosed for the first time that the company was indebted to the tune of over $20 million in private loans.

On May 29, 2023, Soberal and Olguin convened a video conference for Bitwise's entire staff, during which they delivered a prepared statement announcing immediate furloughs for all personnel and the likelihood of paychecks bouncing.

On June 3, 2023, the Bitwise Board declared the termination of Soberal and Olguin's positions and appointed a Board member as interim CEO.

Subsequently, on June 28, 2023, the Board initiated Chapter 7 bankruptcy proceedings in the United States District Court for the District of Delaware on behalf of BWI, Bitwise Industries, and various affiliated entities. Presently, these entities are undergoing liquidation procedures.

Claims For Relief

1. First Allegation For Relief (Breach of Section 10(b) of the Exchange Act and Rule 10b-5)

The Commission reaffirms and integrates by reference paragraphs 1 through 51.

By participating in the actions delineated above, the Defendants, directly or indirectly, in association with the purchasing or vending of securities, through the utilization of interstate commerce instruments or mail services, with an intention to deceive:

Implemented ploys, strategies, or deceptive methods;
Rendered false statements of significant facts or omitted to disclose material facts essential for preventing the communicated statements from being misleading in the context under which they were conveyed; and
Engaged in activities, customs, or commercial practices that functioned or would function as deceit or fraud towards other parties, including securities buyers.
Due to the aforementioned, the Defendants have transgressed, and unless restricted and ordered otherwise, will persist in contravening, Section 10(b) of the Exchange Act and Rule 10b-5 under it.

2. Second Allegation For Relief (Breaches of Section 17(a) of the Securities Act)

The Commission reiterates and integrates by reference paragraphs 1 through 51.

Through their involvement in the actions detailed above, the Defendants, directly or indirectly, during the offer or sale of securities, utilizing the channels of interstate commerce instruments or mail services:

a. Demonstrated intention, employed tactics, schemes, or stratagems to deceive;

b. Acquired money or assets through false representations of significant facts or by neglecting to disclose crucial facts necessary to prevent the transmitted statements, under the circumstances they were conveyed, from being deceptive; and

c.Engaged in dealings, customs, or business practices that were or would be fraudulent or deceitful towards purchasers.

Due to the above circumstances, the Defendants have violated, and unless restricted and directed otherwise, will persist in violating, Section 17(a) of the Securities Act.

Request For Remedy

The Commission respectfully petitions the Court to:

I. Permanently prohibit Defendants, directly or indirectly, from infringing Section 10(b) of the Exchange Act and Rule 10b-5 thereof, along with Section 17(a) of the Securities Act.

II. Permanently prohibit Defendants, directly or indirectly, inclusive of but not confined to, any entity under their ownership or control, from participating in the issuance, purchase, offering, or sale of any security. However, it's noted that such prohibitions shall not impede Soberal or Olguin from engaging in the purchase or sale of securities for their personal accounts.

III. Issue an edict prohibiting Defendants from holding office as an officer or director in any entity possessing a class of securities registered with the Commission under Section 12 of the Exchange Act or mandated to file reports under Section 15(d) of the Exchange Act, as per Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act.

IV. Issue a directive mandating Defendants to relinquish all unlawfully obtained proceeds or undue enrichment originating from the activities delineated in this Complaint, alongside pre-judgment interest accrued thereupon.

V. Issue a directive mandating Defendants to remit civil monetary penalties in accordance with Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act.

VI. Retain jurisdiction over this lawsuit, adhering to the principles of fairness and the Federal Rules of Civil Procedure, to execute and enforce all orders and decrees issued herein, or to entertain any suitable petitions or motions for further remedy within the jurisdiction of this Court.

VII. Bestow any other remedy or redress that this Court deems equitable and essential.

Relief Granted

The rulings prohibit Soberal and Olguin from infringing upon Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, along with Rule 10b-5 under the latter. Moreover, the judgments impose injunctions based on conduct and prohibit both defendants from serving as officers or directors. Additionally, they defer the matters of disgorgement and civil penalties for the court's further deliberation. Soberal and Olguin, without admitting or denying the SEC’s allegations, agreed to the implementation of the judgments.

Key Takeaways For Investors

Investors should note several key takeaways from this situation:

1. Transparency Matters

Ensuring transparency in financial reporting is crucial. Investors should scrutinize audited financial statements for accuracy and consistency.

2. Scrutinize Leadership

The actions of company leadership can significantly impact investment outcomes. It's essential to evaluate the integrity and transparency of executives.

3. Beware of Red Flags:

Discrepancies between presented financial information and audited statements should raise red flags. Investors should investigate such inconsistencies before making investment decisions.

4. Legal Compliance

Companies and executives must comply with securities laws. Any violations can lead to severe legal consequences, affecting both the company's operations and investors' interests.

5. Risk Assessment

Understanding the risks associated with investments is paramount. Investors should conduct thorough due diligence to assess risks accurately.

6. Long-Term Viability

Assessing a company's long-term viability beyond surface-level financial metrics is critical. Look beyond reported numbers to understand the underlying financial health and sustainability of the business.

Gayatri GuptaMay 8, 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.

Securities Lawyer Blog

SEC Obtains Final Judgment Against Jake Soberal And Irma Olguin, Jr., The Former Co-CEOs of Tech Startup Bitwise Industries

Case Summary

Action Summary

Defendants

1. Jake Soberal

2. Irma Olguin

Related Entities

1. BW Industries, Inc.

2. Irma Olguin

Factual Allegations

I. Bitwise and its Business

II. Defendants Raised Approximately $70 Million in 2022

III. Defendants Solicited Investors Through False and Misleading Statements

A. Defendants Misrepresented Bitwise’s Revenue and Gross Margins

B. Defendants Misrepresented Bitwise’s Cash Balances

C. Misrepresentation of Bitwise's Audited Financial Statements

IV. Soberal and Olguin's Scheme Unraveled When They Could No Longer Secure Funding

Claims For Relief

1. First Allegation For Relief (Breach of Section 10(b) of the Exchange Act and Rule 10b-5)

2. Second Allegation For Relief (Breaches of Section 17(a) of the Securities Act)

Request For Remedy

Relief Granted

Key Takeaways For Investors

1. Transparency Matters

2. Scrutinize Leadership

3. Beware of Red Flags:

4. Legal Compliance

5. Risk Assessment

6. Long-Term Viability

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

Licensed in District of Columbia, State of Colorado, US District Court for the District of Columbia, US District Court for the District of Colorado, with pro hac vice Admission for the State of Maryland and Virginia.

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