OTC Bulletin Board and TARP Capital

December 10, 2008

Authored by: Robert Klingler

The Treasury’s fourth round of completed TARP Capital infusions added four more public companies that are traded on the Over-The-Counter Bulletin Board (OTCBB): Blue Valley Ban Corp., Coastal Banking Company, Inc., Manhattan Bancorp, and Oak Valley Bancorp.  As a result, it seems clear that the Treasury is willing to allow public reporting companies that are traded over the OTCBB participate in the TARP Capital program under the public company terms.

As we’ve previously noted, the definition provided by the Treasury of a publicly traded company is “a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10-K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or its primary federal bank regulator.”  While the Treasury has not defined what constitutes a national securities exchange, the OTCBB is generally not considered a “national securities exchange.”  The SEC does not consider the OTCBB to be a national securities exchange.   Neither does the OTCBB itself, which states that it is “not an issuer listing service, market or exchange.”

The Treasury’s willingness to treat OTCBB-traded companies as publicly traded companies can be consistent with the Treasury’s definition in one of two ways.  The Treasury may consider the OTCBB a national securities exchange, in which case OTCBB-traded companies are eligible to participate as publicly traded companies; however, companies with periodic reporting obligations that are traded on the PinkSheets or that are not listed anywhere would be required to participate as private companies.  Alternatively, the Treasury may consider that any company that is required to file periodic reports under federal securities laws may be treated as a publicly traded company.

Communications with the SEC have suggested that non-exchange-listed, but otherwise public, companies may be able to choose to participate under either the public company or private company term sheets.  To that end, Community First, Inc. has filed a definitive proxy statement seeking to authorized preferred stock to participate in the TARP Capital program under the private company term sheet.