Mr. Ofsink established his firm in March 2001, and he's been involved in structuring PIPE (private investment in public equity) transactions and reverse mergers since the late 1990s, with many recent deals coming out of China. In an interview Mr. Ofsink said that he fully understands the SEC's desire to curb predatory financing through PIPE deals, but the measures taken so far have made it less clear what companies can and cannot do.

"At a fundamental level, the capital markets here in the U.S. are what they are because of certainty, and a lot of people come here because of that certainty," Mr. Ofsink said. His firm works with many foreign companies looking to raise capital in the United States - Chinese, European and Brazilian companies, currently - and they come here because they know what to expect and what not to expect as far as market regulations.

The SEC's Rule 415 lies at the center of this. Adopted in the 1980s, it allows companies that are already publicly owned to register new securities and shelve their public offering for up to two years, which lets the company put the securities up for sale when market conditions are good or when the company needs extra cash. This is also the rule that governs PIPE and reverse merger deals, where securities are first sold in a private transaction, and then the buyers sell those shares on a delayed or continuous basis.

Over the past eight months, the SEC has gradually taken the position that a company can't register for resale more than 33% of its public float, putting a cap on the size of PIPE deals and reverse mergers. Mr. Ofsink noted that companies could register some securities for resale and then file another registration statement later, but according to SEC policy, companies are not allowed to file another registration statement until six months have passed or substantially all of the currently registered securities have been sold - whichever is later.

According to Mr. Ofsink, there's no clear guidance from the SEC as to what "substantially all" means - he's been told about 75% - but more problematic is the issue of the 33% threshold. Guzov Ofsink did an analysis of every registration statement declared effective between Dec. 15, 2006, and Jan. 12, 2007, and found 19 deals that exceeded 33%, running a gamut from 47.6% of the public float all the way up to 2,956.6%. The SEC has a facts and circumstances check that allows a company to exceed 33%, but it's not clear when or why it is allowed, Mr. Ofsink said.

"With a registration statement we have pending, initially we were told the SEC would not treat [these deals] any differently under this facts and circumstances test," said Mr. Ofsink. Following a recent public statement by David Lynn, chief counsel for the SEC's Division of Corporation Finance, in which he said there would be different treatment, Mr. Ofsink spoke with a reviewer at the SEC who contacted the chief council's office and told Mr. Ofsink that there would not be any different treatment for that particular deal.

"When we tried to drill down on the facts and circumstances, we didn't really get a lot of guidance … we're not sure that anyone has," he said. Others have also called for clarification of the SEC's Rule 415, including Greg Sichenzia, co-founder of New York-based Sichenzia Ross Friedman Ference LLP . Representatives at the SEC's Division of Corporation Finance were unavailable for comment at press time.

Mr. Ofsink's firm also sent to the SEC its analysis of the recent deals exceeding the 33% threshold, but received no response. When he pressed the SEC reviewer assigned to one of his deals, the reviewer told him that the 33% threshold was the commission's policy, but that it probably wouldn't be put into writing. And therein lies the difficulty for companies and investors.

The adjustment to the rule comes as PIPE deals chart new heights. Almost $28 billion was invested in PIPE transactions throughout 2006, and as this corner of the capital market grows, shady dealings have followed. Just two months ago, Dallas-based hedge fund Gryphon Partners was targeted by the SEC for its alleged naked shorts on the stock of companies in which it had entered into PIPE deals, and for covering the positions with the discounted PIPE shares . January saw similar charges brought against Joseph Spiegel, formerly of Spinner Global Technology Fund Ltd., for allegedly fraudulent PIPE dealings in 2002 . In March 2006, the SEC settled charges with Jeffrey Thorp, manager of three New York hedge funds, stemming from his short-selling of PIPE securities in 2000 to 2002 .

Despite the ambiguity of Rule 415, Mr. Ofsink said he's seeing deals continue to go forward in the United States, but not without complications. Companies as well as the institutional investors involved in the deals - which are usually hedge funds, he said - are worried about the uncertainty.

"It's something that's making people think twice before they go out and raise money," Mr. Ofsink said. "With deals that we're working on that are pending, this is impacting the negotiations on valuations and certainly on registration rights provisions and penalties." Both domestic and foreign companies are encountering difficulties, he said, and they're starting to look for alternatives - some clients have asked about the Alternative Investment Market in London, and a consulting firm Mr. Ofsink deals with is putting together a program for companies to go to Frankfurt, Germany.

"The fact of the matter is that there's competition in the capital markets, certainly in the U.K. with the AIM, and Frankfurt is emerging, southeast Asia as well," said Mr. Ofsink. "Many of the Chinese companies we deal with consider going public in Hong Kong, Singapore and other places, but the destination of choice has been the U.S., and I think it should continue to be, but with these things happening it doesn't really push them toward that."