SEC Approves New Rules on Reverse Mergers

On November 9, 2011, The SEC tightened the rules that companies wishing to go public through the reverse merger process will be subjected to. Effectively immediately, reverse merger companies will now be required to undergo a "seasoning period" of one year during which companies will be restricted to trading only on a U.S. over-the-counter market or has been listed in a foreign stock market for a minimum of a year, submitted audited financials to the SEC. These reverse mergers must also meet a minimum share price requirement of a $4 closing price for 30 of the 60 days before applying to list with an exchange. Rules have not changed with respect to filing financial statements according to listed-company standards.

The updated rules are expected to reduce the ability for companies to artificially inflate prices in response to growing concerns of Chinese companies taking advantage of loose standards. The SEC's ruling is intended to benefit both investors and issuers. Reverse merger companies may be exempt from the rules if the listed shares are in connection with an underwritten public offering or if the reverse merger occurred at least four years ago and annual reports have been filed since.

The SEC ruling can be read in its entirely using the following link: http://sec.gov/news/press/2011/2011-235.htm