FERRETING OUT SECRET CONTROL OF THE PUBLIC FLOAT

Whenever one plans on engaging in business with other persons, is imperative to understand who those persons are. For private companies seeking to engage in a public merger, it should take steps to find out the identity of the persons who hold a significant portion of the float or who may control the float.

A review of the shareholder list, and perhaps a NOBO list, if there are many shares in street name (that is, held in the name of CEDE & CO) is a wise investment. But, what are some of the badges of fraud, so to speak, a person seeking to hide their beneficial ownership?

One of the “red flags” are securities owned by a company outside the United States, especially incorporated in a known offshore jurisdiction. Bad actors frequently hold the shares through offshore companies for the simple reason that it is often impossible for regulatory authorities in the US to find out the identity of the true beneficial holders or to prosecute those persons for violations of the securities laws. Typical jurisdictions used are Cayman Islands, Cook Islands, Marshall Islands, Panama, and Nevis. All though there are justifiable region reasons for holding securities in this fashion, caution would be advised.