Warning: Nasdaq Actively Reviewing 8-Ks for Listing Violations

Based on recent client experience and discussions with Nasdaq, it is clear that Nasdaq is reviewing 8-Ks to determine whether companies may have listing requirement violations and is sending out listing requirement deficiency letters on the basis of such reviews (which, as you know, trigger another Form 8-K filing requirement) without giving companies advance notice.

In my particular case, the client recently had a board/audit committee member resign, which resignation was announced on Form 8-K. The Form 8-K did not discuss how the audit committee vacancy was to be filled. Nasdaq called the client to ask about this matter as the client was in the process of getting the new audit committee member appointed. Because the company was not in compliance at the time that Nasdaq called, Nasdaq sent the client a listing requirement deficiency notice immediately after the call even though the client made it clear that the audit committee replacement (a current director) had been identified, that no audit committee action had been taken since the resignation, and that she would get the replacement appointed within a matter of hours after the call. The client's pleas for 24 hours to prove it was in compliance fell on deaf ears. We are trying to go up the ladder to get Nasdaq to retract the letter, but based on our discussions with Nasdaq thus far we are not optimistic. As a result, we probably will be forced to announce the receipt of the deficiency letter even though we will have solved the problem by the time the 8-K is filed.

This all could have been avoided if the company had immediately filled the audit committee vacancy. In addition, if the client had announced that it had filled the vacancy in the 8-K announcing the director resignation, the Nasdaq call wouldn't have been made. The practice tip is to address potential listing violations -- no matter how benign or easily fixed -- right away and, if possible, to make it clear in relevant SEC filings that there are no such listing violations.

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