Newsflash: Failure To Comply With Plan Technicality Causes US Securities Law Violation

October 10, 2017

Section 5 of the Securities Act of 1933 prohibits the sale of a security unless a registration statement is in effect. This prohibition on the sale of unregistered securities does not apply to exempt transactions. One such exemption is found in the Bankruptcy Code — section 1145 provides that securities issued under a plan of reorganization may be exempt from the registration requirements of the Securities Act. For debtors, the recent decision of Golden v. Mentor Capital, Inc., 2017 U.S. Dist. LEXIS 153415 (D. Ut. Sept. 25, 2017) highlights the importance of complying with the requirements set forth in the plan and confirmation order, as failure to comply with even a minor plan provision could result in securities not being issued pursuant to section 1145, and thus a securities law violation.

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