Beginning this year, as described by SEC’s Chair Mary Jo White at the Chair Mary Jo White at the 41st Annual Securities Regulation Institute on January 27, 2014, described some of the new tools and systems the SEC would be using in 2014. Read more
Category: Stock
CVS’s Move to Stop Selling Tobacco and the Business Judgment Rule
As you may have heard, CVS pharmacies are planning to stop selling tobacco products. When I heard about that, the lawyer side of my brain wondered about the thought process behind the decision. As the company, CVS Caremark, is a publicly traded for profit corporation, and not a benefit corporation, how would the CVS board justify its decision? Read more
Securities Laws as applied to Virtual and Online Items
There’s been a lot of discussion about whether online or virtual accounts can be deemed securities under the U.S. federal securities law. The most well known at the moment is Bitcoin.
A case was just decided where the court found that Bitcoin was a currency. Based on that fact, and that the protaganist in the case was offering a money making scheme (you put in money, wait and make more money off Bitcoin), the scheme was subject to the securities laws. We’ll have to parse out the holding. The court did not hold that the Bitcoin itself is a security, but rather that Bitcoins are a type of currency – because they can be converted into currency (which I’m not sure I agree with – any commodity, product or item can somehow be converted to currency – and the distinction between selling and converting seems like a big deal). Here’s the link to the case, its actually rather short and sparse on legal analysis for one that makes such huge leaps in legal doctrine as applied to a concept which the court is probably not overly familiar with. The old adage that bad facts make bad law seems to be the culprit again, as the scheme the guy in Texas was attempting to pull off was not something a judge would let him off on.
I’m pretty sure this isn’t the last we’ve heard of the SEC v. Bitcoin debate. Mark it up as SEC 1, Bitcoin 0 so far, unfortunately.
I’ll give a breakdown of the securities laws and how they could be, and have been, applied to virtual goods, online items, and currency, including Bitcoin (which I’m not conceding is technically a currency). Read more
Intrastate Securities Offering Exemption
I wanted to blog on some of the lesser known and relied on securities exemptions. In certain situations they can be very helpful. One of these is the federal Intrastate Securities Offering Exemption. Simply, if you offer and sell in one state and one state only, and some other factors are met, the issuer is exempt from the federal registration requirement. Blue sky laws will still apply but some states have limited offering exemptions or other exemptions the issuer can rely on. Read more
Series A Participating Preferred Stock and Term Sheet Terms
If your startup just got a term sheet from an investor saying that they want to invest in your company and want to receive participating preferred stock with all of these other rights, you may be a bit overwhelmed. First off, congratulations on the proposed investment. Next, I’ll explain what all of those terms on the term sheet mean in this post starting with the participation component of participating preferred shares. Read more
Benefit Corporations (B-Corps) & Other “Good Vibe” Corporate Structures
It used to be that if you wanted to start a corporation and the end goal was not to maximize shareholder value (or other typical corporate goals), you’d start a not-for-profit corporation. That’s no longer the case. Now in New York (and at least six other states) you can form a Benefit Corporation (a “B-corp”) which has other purposes besides making money. There are also other strategies you can use in a for-profit company to give it more of an egalitarian feel. We’ll discuss below. Read more
JOBS Act Broker-Dealer Registration Exemption
The JOBS Act contained many provisions which were aimed at making the capital raising process easier, simpler and quicker from a host of angles. Many things promised in the JOBS Act will not come to fruition until the SEC promulgates the regulations on the specific topic. Some of these are equity crowdfunding, and the ability for issuers to use general solicitation in Rule 506 offerings.
One of the things contained in the JOBS Act which went into effect immediately, was an exemption for broker-dealer registration for persons or entities acting as brokers in certain 506 offerings. The SEC just confirmed this in a recent FAQ available here. I’ll give a quick overview below. Read more
FINRA “Know Your Client” and Suitability Rules
Last summer (2012) FINRA came out with new Know Your Client (“KYC”) and Suitability Rules, which replaced NYSE Rule 405 (the old KYC Rule) and NASD Rule 2310 (the old Suitability Rule) applicable to securities brokers/dealers and firms. The old rules were pretty unclear and the new rules help to clarify some points, but aren’t exactly as clear as they can be. FINRA will have some wiggle room in applying them.
Stock Appreciation Rights
Another way to compensate employees of a corporation is to issue them Stock Appreciation Rights (“SARs” – not “sars – severe acute respiratory syndrome”, that’s something else). SARs grant employees, usually higher level executives, the right to receive stock and/or cash at a future date in an amount pegged to the increase in value of the corporation’s shares of stock over a certain time period. If the company’s share value increases, so to does the value of the SARs. SARs often are offered along with traditional stock options, although they are granted seperately (if done with stock options, sometimes you will see them called “Tandem SARs”). Read more
To Register or Not to Register?: Broker-Dealers and Finders
If you are involved in a startup you undoubtedly have heard about the company’s need to raise money. If you’ve gone the regular route you may be funded by institutional investors, like an angel or VC fund. The company may also have raised money through a private placement by selling equity to investors directly or through brokers.
You may have heard of another type of person involved in the capital raising process called a “finder”. Everyone has heard of the term a “finder’s fee” which is known to be about 10% of the overall transaction. The concept is the same with startup financing or M&A activities, although who can qualify as a finder and how they can be compensated has been a big deal with the SEC in the last couple years. The real issue is when anyone can act as a finder, and if they really should be registered with the SEC as a broker-dealer. Read more