“We are under a voluntary reporting standard under OTC,” Daniels said. “We have devoted time and resources to doing things we need to complete the move and to grow the business.”
DETAILS: Springfield-based EF Hutton offers new product for investors
EF Hutton America, a financial services firm based in downtown Springfield, had been listed on the OTC Pink Limited Information market tier for much of last year. But the company’s status was downgraded last month to the Pink No Information tier, said Saskia Sidenfaden, vice president of corporate communications for the OTC Markets Group.
“Pink No Information companies are labeled with a stop sign and a warning label on our website to notify investors that these companies are not making material information publicly available,” Sidenfaden said.
Daniels said he doesn’t believe the drop in status will affect EF Hutton America. The company will disclose financial documents in the future, he said, although he declined to discuss a timeline. The firm attended trade shows in Orlando, Fla., and New York in recent weeks to promote its products.
“We’re very much aware of what our status is and we’re doing what we think is best to run and grow the business,” Daniels said. “We’re doing the things that our investors want us to do, which is focus on growing the business.”
RELATED: Springfield-based EF Hutton launches website, products
Local leaders in Clark County have hoped EF Hutton America will bring new jobs and investment to downtown Springfield. The company has bought two prominent downtown buildings and said it plans to invest $22 million and add up to 400 new jobs in Springfield over the next five years.
The OTC Markets Group is a financial market based in New York that provides financial information for thousands of over-the-counter securities. Reporting standards are much lower than the heavily regulated Securities and Exchange Commission. To create clarity for investors, the OTC organizes securities into three markets based on the quality and quantity of information companies make available.
The Pink Open Market is the lowest of the three tiers. Within that tier, the OTC further breaks down securities based on the information they provide. No Information is the lowest tier of the Pink Market.
“The Pink Open Market offers trading in a wide spectrum of securities through any broker,” the OTC website says. “With no minimum financial standards, this market includes foreign companies that limit their disclosure, penny stocks and shells, as well as distressed, delinquent and dark companies not willing or able to provide adequate information to investors. As Pink requires the least in terms of company disclosure, investors are strongly advised to proceed with caution and thoroughly research companies before making any investment decisions.”
MORE COVERAGE: EF Hutton America move to Springfield a ‘catalytic moment’ for resurgence
Information on the OTC website shows EF Hutton filed documents in November, notifying the OTC it would be late filing a quarterly report that ended on Sept. 30 last year.
“In order to accurately reflect our financial position as a result of an important financial situation and its potential impact on the scheduled filing due Nov. 14, 2016; we are requesting an extension to file our quarterly report for the period ended Sept. 30, 2016,” EF Hutton America’s filing stated.
That document showed EF Hutton America anticipated a filing date of Nov. 21 last year. However, no additional disclosures have been filed since.
In December, Daniels said the company had been the victim of an Internet marketing fraud that cost the firm two months worth of business. However, Daniels said that incident didn't play a significant role in the company's delayed filings.
“It’s a matter of having resources that have to be allocated to activities to grow the business,” Daniels said.
Even if EF Hutton America had reported little to no revenue as a result of the fraud, Sidenfaden said the firm would have qualified to retain its Limited Information status by filing necessary financial documents.
READ MORE: EF Hutton seeks to throw out former exec’s lawsuit over disputed pay
“In short, the Pink market is a disclosure-based market in which companies are segmented — and labeled — based solely on the quality and quantity of their disclosure (and) the transparency of information for investors, not on the strength of their business,” Sidenfaden said.
The latest disclosure on record was an unaudited financial statement the company filed with the OTC for the quarter ended on June 30, 2016, that listed more than $10.7 million in total assets, including more than $580,000 in cash. That was up from about $23,000 in cash reported in an audited statement from December 2015.
Documents filed with the Securities and Exchange Commission in May 2016 show EF Hutton de-registered with the SEC. Companies listed on the OTC “can be among the most risky investments,” according to the SEC’s website, because it can be difficult for investors to find reliable information on their financial performance.
Daniels said last week the reporting requirements under the SEC can be financially burdensome, particularly for a start-up like EF Hutton America.
“The reporting requirements under the Exchange Act are rather severe and extensive,” Daniels said. “The time and the cost involved in that type of reporting standard is significant for a company in the growth stage.”
Michael McDorman, president and CEO of the Chamber of Greater Springfield, said he was unaware of the reporting requirements and declined to comment on that issue. However, he said the EF Hutton America has been active in marketing its products in recent weeks.
“What I can speak to is the strategy they’ve employed is sound,” McDorman said. “They are now trying to execute on that strategy and as you know that takes capital and it takes marketing. It takes building a strong operation for that to be successful.”
It’s not uncommon for start-up firms to face challenges early on, he said.
“The challenge is you’re ramping up a start-up company that is trying to get its legs underneath it and that takes a lot of dollars and effort with very few people,” McDorman said. “It’s too early to tell whether or not they’re able to meet the requirements this entity (the OTC) has put on them. Right now, their focus is sell, sell, sell. “
By the numbers
415: Jobs that have been projected EF Hutton America will add in Springfield
$1.5 million to $1.7 million: Possible final value of proposed employment incentive agreement with the city of Springfield
$22 million: Investment EF Hutton America plans to make to move to Springfield
The Springfield News-Sun has provided award-winning coverage of business in Clark and Champaign counties, including stories digging into EF Hutton America’s decision to move to downtown Springfield and Navistar’s expansion plans.
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