A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

The SEC has announced that, “beginning January 1, 2012, the staff will release filing review correspondence no earlier than 20 business days following the completion of a filing review.”  This shortens the SEC’s historical (well, since 2005) practice of releasing such correspondence “no earlier than 45 [calendar] days after the review of the disclosure filing is complete.”  This may be useful to note for a company that deals with SEC review (either registration or periodic/current reports). Continue Reading

A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

Amid the recent flurry of House bills intended to facilitate capital formation, which we’ve discussed here and here, is the Access to Capital for Job Creators Act, H.R. 2940.  H.R. 2940 would amend Section 4(2) of the Securities Act of 1933, as amended, to exempt from SEC securities registration:

transactions by an issuer not involving any public offering, whether or not such transactions involve general solicitation or general advertising.

The bill would also require the SEC to amend Rule 506 of Regulation D to:

  • Permit general solicitation or general advertising in offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors; and
  • Require the issuer to take “reasonable steps” to verify that purchasers of the securities are accredited investors.


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A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

Like other capital formation bills we’ve discussed, the House of Representatives has overwhelmingly approved (by a vote of 407-17) the “Entrepreneur Access to Capital Act,” H.R. 2930.  Subject to certain limitations, H.R. 2930 would allow businesses to raise money selling unregistered securities using “crowdfunding.”

Crowdfunding generally involves raising funds from large numbers of people typically in small amounts, often using social networks.  Crowdfunding has been used successfully for charitable purposes, where participants donate funds, but the public nature of most crowdfunding solicitations limits the ability of businesses to raise investment funds using crowdfunding. 


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A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

The House of Representatives overwhelmingly passed two bills designed to improve capital formation, one addressing the 500-shareholder threshold for SEC registration and one addressing offerings under Regulation A.

 500-Shareholder SEC Registration Threshold

Sections 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) generally requires companies with at least $10 million dollars in total assets and 500 shareholders to file reports with the SEC.  While the $10 million asset threshold has increased from $1 million over the years, the 500 shareholder threshold has not moved.  House of Representative bill H.R. 1965 would increase the shareholder threshold for SEC registration from 500 to 2,000 as to banks and bank holding companies.  The bill was approved in the House of Representative by a vote of 420 to 2.


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A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

For a variety of reasons, many emerging companies are not in a position to easily identify venture capital funds, banks, or angel investors from whom to raise money or to identify a potential acquirer for their business.  Publicly soliciting investors in a registered offering might involve prohibitive costs and an uncertain outcome.  The entrepreneur may not have adequate personal wealth to fund the company, not be fortunate enough to have rich relatives or friends, or not be looped in to the right circles to meet financially sophisticated potential investors.  Such small businesses sometimes turn to “finders” to help them locate potential sources of financing or acquirers.

What is a “Finder”?

Defining a “finder” is difficult.  This report of an ABA Task Force on Private Placement Broker-Dealers describes a “finder” as a person who:

  • brings together buyers and sellers for a fee;
  • who has no active role in negotiations;
  • who may not bind either party to the transaction; and
  • who may not offer or sell or buy the security.

Legitimate finders should strictly be intermediaries who merely introduce parties and then step back.  However, giving the finder a fee, which is commonly tied to a successful closing, can often create an incentive for the finder to do more.  This can raise challenging legal issues under the securities laws.


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A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

The SEC has issued a new fee rate advisory.  The fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall be $114.60 per million effective on October 1, 2011.  Keep this in mind for any upcoming registration statements or going private deals, M&A deals, tender offers, or other proxy statements requiring a fee.Continue Reading

A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

As expected per the Dodd-Frank Act, the SEC yesterday proposed to add “bad actor” exclusions to Regulation D Rule 506.  Similar to Regulation D Rule 505, Regulation A, Regulation E and state limited offering exemptions, the amendment would disqualify offerings from the use of Rule 506 if the issuer or certain persons involved in the offering have, during the relevant look-back period, faced criminal, civil or administrative orders involving a variety of securities or other financial services industry matters.  If the proposed rule is adopted, entrepreneurs and investors will need to be even more careful when recruiting executives and directors to join the company.  The company will also want to consider doing additional diligence regarding individuals or companies assisting them with sales of securities, as well potential significant investors.


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Ledbetter, Andrew D._photo_3659.jpgpic-asher.jpg

 CONTRIBUTED BY
 Andrew Ledbetter and
 Asher Bearman

New SEC rules regarding political contributions by certain investment advisers – dubbed the “Pay to Play” rules – become operative on March 14th.  These rules generally prohibit registered and certain unregistered advisers from engaging various political contribution practices with a quid-pro-quo element.

**UPDATE**  Don’t miss our newer post with some examples and guidance on dealing with the new rules, available here.

This post addresses the scope of these new rules and which investment advisers are subject to the restrictions (hint – most of them).


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Ledbetter, Andrew D._photo_3659.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

The SEC yesterday proposed rules on the “accredited investor” net worth standard, to implement Section 413(a) of the Dodd-Frank Act. Not much “new” here, but the proposed definition is:

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.

The “excluding the value of” clause tracks Section 413(a) of Dodd-Frank (and should already be in forms at this stage). The “calculated by subtracting” clause is intended to clarify that you only exclude the net equity (e.g., include the net debt), which is consistent with the SEC C&DI issued on this topic following Dodd-Frank. Essentially, this means if you have net equity in your home, you can’t count any of that net equity in determining whether you meet the $1M net worth standard. And if you have any debt in excess of the value of the home, that net debt would count against your net worth.


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