I think the house of cards is about to come crashing down on Alpha T. Once again they have rushed to action without thinking anything through.
I have been researching the UK laws on Public Offering Of Shares and they are pretty damn strict. If you offer shares to more than 99 people in the UK or any EU district (35 in the USA), it is considered a Public Offering. This cannot be done by a Private Company, it is illegal under The Companies Act.
Section 81 Companies Act 1985 states "A private limited company commits an offence if it: offers to the public (whether for cash or otherwise) any shares in or debentures of the company; or allots or agrees to allot (whether for cash or otherwise) any shares in or debentures of the company with a view to all or any of those shares or debentures being offered for sale to the public".
Alpha will have to go public,this means they must have a minimum of £50,000 in share capital and be audited . Not only that, they have to jump through serious hoops, divulge large amounts of sensitive data and spend a lot of money.
There are several disadvantages to completing an initial public offering:
Significant legal, accounting and marketing costs, many of which are ongoing
Requirement to disclose financial and business information
Meaningful time, effort and attention required of senior management
Risk that required funding will not be raised
Public dissemination of information which may be useful to competitors, suppliers and customers.
Loss of control and stronger agency problems due to new shareholders
The IPO process is time consuming, complex, and requires a company to have a clear and complete understanding of its core business functions before embarking
Another problem for Alpha is that the UK is very strict on who can be offered shares, what has to be disclosed and how they are promoted.
"The law starts from the premise that the ordinary person in the street deserves to be protected from
people offering investments, and in particular shares, for sale to them. The logic is, that these sorts of
investments often require relatively significant sums of money and further that is it not easy for an
investor to know at first glance what constitutes a good‟ investment. The law therefore is very
prescriptive about what you can do to raise investment."
If the shares are to be made transferable, ie you will be able to sell them on or gift them they will need an Approval Prospectus which is an expensive document that needs to be approved by the FCA (Financial Conduct Authority)
The prospectus must be approved by the competent authority in the United Kingdom, which is currently the Financial Conduct Authority (FCA) in its capacity as the United Kingdom Listing Authority. If the purpose of the prospectus is to induce people to engage in an investment activity, it will also need to be issued or approved by an 'authorised person' or it will constitute an unlawful financial promotion under section 21 of the Financial Services and Markets Act 2000.
On top of this, as Alpha are distributing these shares across the world, they will have to comply with the laws in each country.
Beware of foreigners. If you think UK and EU securities laws are complex, try US
securities laws! If you are using the internet to promote your crowd fund offer bear in
mind that 60% of the English speaking audience on the internet are from the US. If a
US citizen in the US is capable of accepting your offer, then you are offering securities
in the US and so you must comply with US securities laws too! This can get very
complicated and costly for you when your subscribers are from outside of the EU.
Basically Alpha have once again shot the pooch. They have no idea what they are doing or the costs and the regulation involved in this harebrained scheme. The penalties are severe for flouting FCA laws, including heavy fines and/or imprisonment. Mr M Akram's offer may already be in breach of FCA laws as his statement could be considered a Financial Promotion.
Making a financial promotion may be a criminal offence
Everyone is subject to the financial promotion regime whether or not they are a financial services company or work in the financial services industry. If a person who is not an authorised person communicates, or causes someone else to communicate, a financial promotion, they will be:
Committing a criminal offence unless an authorised person has approved the contents of the promotion or it is covered by an exemption.
Liable to a fine, up to two years' imprisonment, or both.
Any agreements entered into as a result of the communication may be unenforceable: the customer may be entitled to recover any money paid or other property transferred under the agreement and to compensation for any loss.
See Practice note, Financial promotion: sanctions, defences and FCA disciplinary action.
What is the financial promotion regime?
A financial promotion invites/induces someone to engage in investment activity
A financial promotion is a communication of an invitation or inducement to engage in investment activity, such as entering into an agreement to buy or sell shares. It can be oral or written. A financial promotion can take many forms. For example:
A press release or briefing containing statements about future plans to develop the business and the impact on future revenue or profit performance.
Information posted on the company's website. The medium of a website is viewed no differently to other forms of communication.
A statement made by the chairman during an AGM (perhaps in response to a question from the floor) which speculates about the company's future performance or its share price.
Therefore, the legal team should be aware of all types of communications that the company will put out and ensure that those who are responsible for communicating with the outside world have received appropriate training.
And they are going to have to be A LOT more honest if they don't want to wind up in prison.
section 397 of FSMA makes it an offence to make misleading, false or deceptive statements or dishonestly to conceal material facts with a view to inducing a person to buy or sell shares.
This is not a breach of the DSR the FCA take this sort of thing very seriously and prison sentences are regularly handed down for breaches of their many regulations. I've got a feeling this will be dropped like a hot potato as soon as a solicitor takes one look at it. Once again taking another large dump on Alpha's tattered credibility and leaving their customers FUBARed once again.