(Cosnita-Langlais & Jean-Philippe 2013, p. 34) On the one hand, if this form is used to corrupt the consultants and auditors of the reverse takeovers, it is definitely against the law. On the other hand, it is encouraged for firms to issue shares to its own managers and staffs in reward for their work and efforts. Therefore, the issue here is to restrict the use of form S-8 to the legal sense.
In April 2004, the Securities and Exchange Commission (SEC) started to put forward a series of changes on the rules of shell companies in response to the above two issues. In 2005, these new rules were officially announced and put into effect. The shell companies that do not have their main business operations in America are addressed in this series of new rules. Regarding the use of form S-8, it is obligated for the private companies to file extensive additional information within 4 days of the completion of reverse takeovers apart from filling in the forms. In specific, the information is required to include the the audited financial reports in the past two years just before the merger. Additionally, it also needs to incorporate .
2.2 Changes in Regulatory Requirements of Reverse Merger after 2010.
Due to the increased number of accounting fraud and fraudulent behavior in reverse mergers, the stock exchanges of US, including NYSE and NASDAQ, decide to tighten the regulatory requirements on reverse mergers after 2010. In fact, after 2010, more strict regulations and standards are applied to ensure the private companies going public by acquiring a shell firm to provide the true and fair financial information to investors. The new regulations mainly aim to reduce the market and regulatory risks imposed on potential investors. .
In the June of 2011, it was announced by the Securities and Exchange Commission (SEC) that it found there are a number of foreign firms going public in US with the majority of their obligations still overseas.