On March 22, 2017, as previously anticipated by the market, the SEC adopted an amendment to Rule 15c6-1 under the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (T+3) to two business days (T+2).  The SEC proposed the amendment on September 28, 2016, in connection with a variety of related changes to the SEC’s rules and the rules of self-regulatory organizations such as FINRA to facilitate the U.S.’s move to a T+2 settlement cycle.

For more information, see our blog post on The BD/IA Regulator.

Morrison & Foerster is pleased to share with our clients and friends the 2017 Proxy Season Field Guide. With an environment of heightened shareholder activism and focus on compensation and corporate governance disclosures, The Proxy Season Field Guide provides you with an overview of recent legislative, regulatory and shareholder developments, and provides information on how these developments will impact you in the 2017 proxy season.

View our 2017 Proxy Season Field GuideIf you would like a hard copy, please email tstarer@mofo.com.

On March 17, 2017, FINRA filed with the SEC proposed changes to the Private Placement Filer Form (“Filer Form”) that FINRA members must complete when submitting private placement filings under FINRA Rules 5122 or 5123. The proposed changes will assist FINRA in evaluating the private placement activities of its members and assess whether members are conducting a reasonable investigation for private placements in which they participate. The proposed changes to the Filer Form will add, clarify and remove certain questions or information as summarized below:

  • Participating Member Information. Additional questions would be included regarding whether the member making the filing is the exclusive selling agent in the private placement and whether there is any affiliation between any member participating in the private placement and the issuer or sponsor of the offering. FINRA members will no longer be required to provide the title and email address for the contact persons identified in the filing.
  • Issuer Information. An additional question would be included asking whether the issuer is a reporting company. The name, title and email address of the contact person at the issuer will no longer be required.
  • Offering Information. Additional questions would be included regarding: (i) the type of security being offered; (ii) whether the issuer has raised capital in the preceding 12 months; (iii) the minimum investment amount and whether such minimum can be waived by the issuer; (iv) whether the FINRA member making the filing sold or will sell the offering to any non-accredited investors; (v) which exemption under the Securities Act of 1933 the issuer is relying on; (vi) for contingency offerings, whether the contingency has been met as of the date of filing; and (vii) the date on which the FINRA member first offered or sold securities in the private placement or whether sales have yet to commence. The Offering Information section would no longer require the filer to provide: (a) the aggregate amount of non-commission compensation; (b) the private placement’s conclusion date; (c) whether the FINRA member used a term sheet; (d) whether the issuer has any independently audited financial statements; or (e) whether the issuer’s directors are independent. In addition, the Offering Information section would clarify that the requirement to provide the stated or target rate of return is relevant only if an offering document provides an actual or target rate of return to investors and that the question regarding general solicitation only seeks information regarding whether the filing member or the issuer has, in fact, engaged in general solicitation in connection with the private placement at or before the time of filing.

FINRA also clarified that filers would still have the option to respond “unknown” to any of the questions in the Filer Form.

The proposed changes are available at: https://www.finra.org/industry/rule-filings/sr-finra-2017-008.

March 28 – 30, 2017

Pullman San Francisco Bay
223 Twin Dolphin Drive
Redwood City, CA 94065

Israel Dealmakers Summit 2017 is the largest and most prestigious Israel-focused business event of the year featuring a meticulously curated gathering of more than 1,000 global corporations, investors, dealmakers and entrepreneurs from the United States, Europe, Asia and Israel. The event balances a roster of world-class speakers with significant networking time, providing unrivaled dealmaking opportunities across key industries including: IoT & Connected Devices; Cyber Security; Digital, Marketing & eCommerce; Industrial Technology; Autonomous Vehicles; Data Science & Analytics; Artificial Intelligence; and Virtual & Augmented Reality.

Morrison & Foerster is a Featured Sponsorship Partner of this year’s Summit. Partner Anna Pinedo will host a session entitled “Public vs. Private: The Strategic Value of an IPO” on the second day of the conference.

For more information on our Israel practice, please click here.

For more information, or to register for the Summit, please click here.

On Wednesday, March 22, 2017 at 2 p.m. ET, the House Financial Services Committee’s Subcommittee on Capital Markets, Securities, and Investment will hold a hearing entitled “The JOBS Act at Five: Examining Its Impact and Ensuring the Competitiveness of the U.S. Capital Markets”.

The Subcommittee aims to examine the impact of the JOBS Act on the U.S. capital markets, on capital formation, job creation, and economic growth.  Additionally, the Subcommittee plans to identify issues and propose solutions to issues that are currently impeding the competitiveness of the U.S. capital markets.

The hearing will include testimony from the following witnesses:

  • Raymond Keating, Chief Economist, Small Business & Entrepreneurship Council;
  • Brian Hahn, Chief Financial Officer, GlycoMimetics, Inc.;
  • Andy Green, Managing Director of Economic Policy, Center for American Progress;
  • Edward Knight, Executive Vice President and General Council, NASDAQ OMS; and
  • Thomas Quaadman, Vice President, U.S. Chamber of Commerce.

The hearing will be streamed live on the House Financial Services Committee’s website.

On February 28, 2017, the SEC released a white paper analyzing crowdfunded offerings during the first six months following the effective date of Regulation Crowdfunding (May 16, 2016). The white paper noted that crowdfunding has thus far been attracting issuers that have not extensively utilized Regulation D.  Despite a relatively small sample size and a short observation period, the white paper makes, among others, the following observations:

  • There were 163 separate offerings by 156 issuers, seeking a total of approximately $18 million, excluding withdrawn offerings. The median offering amount was $53,000 and the average offering amount was approximately $110,000. However, almost all of the offerings accepted oversubscriptions up to a higher amount (typically close to $1 million) for a total amount of approximately $101 million.
  • As of January 15, 2017, approximately $10 million in proceeds was raised in 33 offerings by issuers filing a Form C-U. The median amount raised in these offerings was $171,000 and the average amount raised was approximately $303,000.
  • For offerings initiated in 2016, 24 were withdrawn by issuers or associated with an intermediary whose FINRA membership was terminated and funding portal registration withdrawn. These offerings sought a total of approximately $2.3 million (approximately $19.5 million if oversubscriptions are included).
  • Most of the offerings solicited in all states.
  • The most popular type of security was equity, followed by “simple agreements for future equity” and debt.
  • The most popular state of incorporation for issuers was Delaware and the most popular principal place of business for issuers was California.
  • The median issuer had under $50,000 in assets, under $5,000 in cash, $10,000 in debt, no revenues, and three employees. Approximately 40% of the issuers reported positive revenue and approximately 9% of the issuers reported a net profit in the most recent fiscal year. Among the issuers that reported non-zero assets in the prior fiscal year, the median growth rate was approximately 15%.
  • 21 intermediaries, including 13 funding portals and 8 broker-dealers, were involved in the offerings. As of December 31, 2016, 21 funding portals have registered with the SEC and FINRA and one funding portal had its FINRA membership terminated and withdrew its SEC registration. The median intermediary percentage fee was 5%, and intermediaries took a financial interest in the issuer in approximately 16% of the offerings.

A copy of the white paper is available at: https://www.sec.gov/dera/staff-papers/white-papers/RegCF_WhitePaper.pdf

On February 28, 2017, the SEC issued an order (the “Order”) temporarily suspending the ability of Web Debt Solutions, LLC (“Web Debt”) to utilize Regulation A, pursuant to its authority under Securities Act Rule 258. The Order stems from untrue statements of material fact made in Web Debt’s offering statement on Form 1-A, which was filed with the SEC on July 11, 2016 (the “Offering Statement”). The SEC specifically noted that the Offering Statement: (i) contained inconsistent, contradictory balance statements regarding Web Debt’s total assets in 2016; (ii) included erroneous statements that Web Debt’s chief executive officer had 15 years of experience in the debt collection industry prior to forming Web Debt; and (iii) listed as the address of Web Debt’s principal office, a building that, as of the date of the Order, was currently under construction and without any businesses operating from it. The SEC also noted that Web Debt’s chief executive officer had failed to fully cooperate with the SEC’s investigation, including failing to: (i) produce, in response to a voluntary document request, any documentation related to Web Debt by a stipulated deadline; and (ii) respond to subsequent communications from the SEC regarding the voluntary document request.

A copy of the Order is available at: https://www.sec.gov/litigation/admin/2017/33-10316-order.pdf

On March 9, 2017, a number of bipartisan bills designed to promote capital raising for companies were approved by the House Financial Services Committee and the Senate Committee on Banking, Housing and Urban Affairs.  Chairman of the Senate Committee on Banking, Housing and Urban Affairs Mike Crapo noted that the bills “will improve economic growth and investor protections.” The approved bills include:

  • H.R. 910/S. 327, “Fair Access to Investment Research Act of 2017”
    Directs the SEC to provide a safe harbor related to certain investment fund research reports
  • H.R. 1219/S. 444, “Supporting America’s Innovators Act of 2017”
    Amends the Investment Company Act of 1940 to expand the investor limitation for qualifying venture capital funds under an exemption from the definition of an investment company.
  • H.R. 1257/S. 462, “Securities and Exchange Commission Overpayment Credit Act”
    Amends the Securities Exchange Act of 1934 to require the SEC to refund or credit excess payments made to the Commission.
  • H.R. 1366/S. 484, “U.S. Territories Investor Protection Act of 2017”
    Amends the Investment Company Act of 1940 to terminate an exemption for companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States.
  • H.R. 1343/S. 488, “Encouraging Employee Ownership Act”
    Directs the SEC to revise its rules so as to increase the threshold amount for requiring issuers to provide certain disclosures relating to compensatory benefit plans.
  • H.R. 1312, the “Small Business Capital Formation Enhancement Act”
    Amends the Small Business Investment Incentive Act of 1980 to require an annual review by the SEC of the annual government-business forum on capital formation that is held pursuant to such Act.

On March 1, 2017, the SEC proposed the use of the Inline XBRL (eXtensible Business Reporting Language) format for the submission of operating company financial statement information and certain mutual fund information.  Inline XBRL allows filers to embed XBRL data directly into an HTML document.  With Inline XBRL, filers need to tag the required disclosures using the applicable taxonomy.  The tagging would be performed within the HTML document instead of a separate XBRL exhibit.  The objective of using Inline XBRL is to improve the data available to investors and other market participants.  The proposed Inline XBRL requirements for financial statement information would apply to all operating company filers, including smaller reporting companies, emerging growth companies, and foreign private issuers that are currently required to submit financial statement information in XBRL.  The proposed Inline XBRL requirements would be phased in based on the category of filer.

On March 1, 2017, the SEC also made IFRS taxonomy available.  As a result, foreign private issuers under Securities Act Rule 405 that prepare their financial statements in accordance with IFRS as issued by the IASB may begin submitting their financial data in XBRL format with their first annual report on Form 20-F or 40-F for fiscal periods ending on or after December 15, 2017.

For more information, see our client alert available at: https://media2.mofo.com/documents/170306-inline-xbrl.pdf.

On March 1, 2017, the Securities and Exchange Commission (the “Commission”) adopted amendments that require that registrants that file registration statements under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) and periodic reports under the Exchange Act subject to the exhibit requirements of Item 601 of Regulation S-K and foreign private issuers that file Forms 20-F and F-10 include hyperlinks to each exhibit listed on the exhibit index in such filings.  The amendments require that all filings be submitted in HTML format.  The amendments become applicable to filings made after September 1, 2017.  Registrants that are “smaller reporting companies” or that are neither “large accelerated filers” nor “accelerated filers” (i.e., “non-accelerated filers”) and that make submissions in ASCII format must comply with the new requirements by September 1, 2018.  A phase-in period also will be applicable to certain securitization related filings made on Form 10-D.  As discussed in August 2016 when these amendments were proposed the objective is to facilitate investor access to exhibits.

Registrants will be required to include a hyperlink to each exhibit identified in the exhibit index, unless the exhibit is filed in paper pursuant to a temporary or continuing hardship exemption.  The requirements are not applicable to any multi-jurisdictional disclosure system (“MJDS”) forms or to Form 6-K.  An active link must be included for each exhibit listed in the exhibit index and if an exhibit is incorporated by reference an active hyperlink to the exhibit separately filed on EDGAR.  The rules do not require that previously filed paper-only exhibits be re-filed.

Registration statements and reports subject to the exhibit filing requirements must be filed in HTML (not ASCII) format.  Schedules or forms not subject to the exhibit filing requirements are not subject to the HTML requirement and may continue to be filed in ASCII format.

See the Commission’s final rule:  https://www.sec.gov/rules/final/2017/33-10322.pdf