Securities Transactions & Corporate Governance
Google Stock Split Preserves Founder Control
Google’s stock split that was announced last Friday created a new class of non-voting stock. Google’s stock structure provides for 66% of the voting power to be concentrated in the hands of three individuals: the company’s two co-founders, Larry Page and Sergey Brin, and the Executive Chairman, Eric Schmidt. By creating the class of non-voting stock, and distributing this stock in the stock split, the controlling shareholders will avoid having their voting rights diluted. Other web companies such as Zynga, Facebook, and Groupon have implemented a similar stock structure, which allows for visionary company leaders to maintain company control. The drawback is that others, including investors and employees, have relatively fewer votes. Institutional investors, including CalSTRS have voiced their displeasure with the structure and effect of this stock split.
Securities Regulation & JOBS Act
SEC Likely to Focus on Heightened Obligations to “Verify” Accredited Investors’ Status Under New 506 Rules
Under current law, securities issuers relying on the Rule 506 exemption from filing a registration statement (the 506 exemption allows issuers to raise an unlimited amount of funds from an unlimited number of accredited investors) only have to have a reasonable belief that certain investors are properly characterized as “accredited investors.” “Accredited” in this context means that the investors meet certain wealth thresholds.
Title II, of the recently passed JOBS Act, allows for issuers to publicly solicit investment (currently public solicitation under Rule 506 is prohibited) so long as the offering is solely to accredited investors. Title II states that issuers must “take reasonable steps to verify that purchasers of the securities are accredited investors.” Congress left it up to the SEC to determine what those “reasonable steps” would be. Thomas Kim, the Chief Counsel and Associate Director of the SEC’s Division of Corporation Finance, speaking at the 32nd Annual Northwest Securities Institute seminar, stated that the SEC was going to focus on securities issuers’ obligations to “verify” investors status as accredited. This will be an important change for securities issuers to be aware of. While the SEC hasn’t stated yet exactly what will be required, it appears that the obligations on issuers to ascertain investors’ financial status will be significantly heightened.
Corporate Finance & Venture Capital
Square Seeks to Raise Another $250 Million
The mobile payment processing company Square, is reportedly seeking to raise another $250 million at a $3 to $4 billion valuation. Last year Square raised $100 million at a valuation of $1.6 billion. Square is led by Jack Dorsey who is also the chief director of Twitter. Square was founded less than three years ago, and is currently processing $4 billion in transactions per year.