Corporate Finance & Securities

Rule 506(c): A Different Type of Crowdfunding?

I read a recent article on Joe Wallin’s Startup Law Blog regarding the differences between crowdfunding and Rule 506(c) offerings. Because of the recent changes to the SEC’s Rule 506 under Regulation D, I figured our readers would be equally interested in learning more about crowdfunding and Rule 506(c). I’ve highlighted some of the main points of Joe’s article below and included some of our thoughts about 506(c) offerings and crowdfunding.

Why all the chatter? In the last year and a half, there has been a lot of talk about crowdfunding, general solicitation, and other innovative ways of raising capital. The chatter has increased recently because of the SEC’s recent repeal of the ban on general solicitation. The repeal of the ban...

— Gavin Johnson

Corporate Finance & Securities

iVLG Attorney Gideon Dionne’s Response to Article Regarding SEC’s Proposed Rules Published in the Wall Street Journal

To follow up our post from last week announcing our new investor verification services, iVLG managing partner Gideon Dionne submitted a response letter to a recent Wall Street Journal opinion editorial by David Verrill. Gideon’s response was published in today’s Wall Street Journal.

Mr. Verrill argued that the SEC’s proposed rules requiring heightened verification standards under the proposed Rule 506(c) is going to cripple the ability of investors to utilize the rule, and ultimately, reduce (or eliminate) the intended benefits of the JOBS Act.

In Gideon’s response, he respectfully disagrees with Mr. Verrill, noting that the new proposed verification standards “will result in reliable, secure and low-cost verifications for investors, platforms and entrepreneurs.” To conclude, Gideon states (and iVLG believes) that “third-party verification...

— Gavin Johnson

Corporate Finance & Securities

Board Authorizes FINRA to Publish Regulatory Notice on Proposed Rules

Last week, the Board of Governors met and authorized FINRA to publish a Regulatory Notice to solicit comment on proposed rules and related form changes for funding platforms pursuant to Title III of the JOBS Act.

The proposed rules will address, among other things, the funding portal membership application process, fraud and manipulation, just and equitable principles of trade, and communications with the public. FINRA expects to publish its proposed rules around the same time the SEC publishes its rules on Title III, which is expected to happen later this year.

FINRA also moved forward with a rule proposal to make Rule 144A deals subject to dissemination under the FINRA rules. Check out the proposed rule change here.

Stay tuned! We’ll keep you...

— Gavin Johnson

Litigation & Dispute Resolution

Federal Class-Action Securities Lawsuits Slow Down in 2012

The stock market improved in 2012 and the demand for federal shareholder lawsuits slowed down. Coincidence? I think not. The better the market is performing, the happier shareholders will be.

A new study by Cornerstone Research reports that 152 federal class-action securities lawsuits were filed in 2012. This number of cases is well below the average of 193 suits in the prior 15 years, and significantly less than the 188 cases in 2011. According to the study, the drop in lawsuits was consistent across a broad spectrum of legal areas. For example, merger-related lawsuits fell by nearly 33 percent in 2012 from 2011.

Another interesting fact is that filings against Chinese companies that pursued stock listings in the U.S. fell to 10...

— Gavin Johnson

Corporate Finance & Securities

NASAA to Investigate Further into Early Crowdfunding Platforms Jumping the Gun

I read a Wall Street Journal article today about the recent investigation into websites claiming to be crowdfunding platforms. Of the reported 9,000 websites that contain the word “crowdfund” in their website names, the North American Securities Administrators Association (NASAA)—the organization that represents state securities regulators—has investigated roughly 2,000, and plans to give a closer look at 200 of those.

Why the investigation in the first place? Well, many securities regulators are concerned that the “relaxed” rules governing securities offerings for private companies might present an opportunity for fraud. NASAA has decided to look further into these crowdfunding sites in an effort to reduce the likelihood of fraud and crack down on those companies that have jumped the gun on crowdfunding...

— Gavin Johnson

Corporate Finance & Securities

SEC Releases Financial Report; Signals “Quick, Pragmatic” Implementation of JOBS Act in 2013

The Securities and Exchange Commission (SEC) released its annual financial report recently. At various points throughout the report, the SEC notes that it has worked and will continue to work to implement the JOBS Act in a quick, pragmatic manner. Also, the report points out that the SEC will attempt to maintain the congressional intent behind the Act in its rulemaking.

The Commission stated in its Management Discussion and Analysis report that it will work to implement the JOBS Act in a “practical manner that reflects the entrepreneurial dynamics of the digital age.” Our interpretation: The SEC will attempt to tailor the rules in a way that recognizes the importance of modern technology’s impact on the private placement markets. The SEC also...

— Gavin Johnson

Corporate Finance & Securities

FINRA Issues Voluntary Form for Crowdfunding Portals

Last week we wrote about the Financial Industry Regulatory Authority (FINRA) announcing the creation of a form for prospective funding portals. Just one week later, FINRA has issued the voluntary interim form for funding portals, which is designed to collect information from prospective crowdfunding portals under the JOBS Act. Those prospective funding portals may voluntarily submit information about their company, and FINRA will use the information it receives to develop rules specific to the regulation of crowdfunding portals.

Once FINRA and the SEC adopt funding portal rules, FINRA will create and issue a funding portal application. The interim form asks the funding portals for information regarding: ownership, funding, management, and business model and relationships.

It will be interesting to see how many prospective funding...

— Gavin Johnson

Business Startup

Slower Than Expected: A Look Into the Timeline for Implementing the JOBS Act

Flashback to April 5, 2012: President Obama puts pen to paper and signs the Jumpstart Our Business Startups Act (the JOBS Act). The President declares that startups and small businesses will “now have access to a big new pool of American investors—namely the American people.” Entrepreneurs rejoice as the potential impacts of this bill could be huge for startups and small businesses. The bill provided a framework and the SEC was handed the reins to draft rules that would govern much of new legislation. The SEC was given a 90-day deadline to implement the JOBS Act.

Flash forward more than 9 months (roughly 270 days later) to January 9, 2013: The SEC has yet to finalize the rules governing the JOBS...

— Gavin Johnson

Corporate Finance & Securities

SEC Names New General Counsel

Yesterday the SEC announced that Geoffrey Aronow would be the next general counsel of the SEC. Aronow, an attorney at the Washington D.C. offices of Bingham McCutchen, will be returning to the public sector once again, after working for the Commodity Futures Trading Commission in the late 1990’s.

The SEC Chairwoman Mary Schapiro resigned last month, and a number of other officers including Mark Cahn, then serving as general counsel, left with her. Elisse Walter, already a member of the Commission, was named as the interim Chairwoman in the wake of Ms. Schapiro’s departure. But the Commission, which usually has five members, is left with only four, and is currently deadlocked on a number of key issues.

Ms. Schapiro left at a time...

— Kyle Hulten

Business Startup

Empowering the Small(er) Investor and Business: The Potential Impacts of Equity Crowdfunding

In early April 2012, President Obama signed the JOBS Act into law. The goal behind the JOBS Act was to ease federal regulations in order to make it easier for smaller companies to obtain funding. Recently, there’s been a rising interest in the impact of the JOBS Act, focused mainly on “crowdfunding”—which, at least for purposes of this article, refers to the funding of a company by selling small amounts of equity to many investors through online intermediaries.

Title III of the JOBS Act (the crowdfunding portion) allows for companies to raise funds online from a variety of investors, including non-accredited investors. Industry professionals can’t seem to agree on what the impact of crowdfunding is going to be. Today’s post lays...

— Gavin Johnson