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For jumpstarts, upstarts and start-ups

Complimentary Teleconference: Canadian Issuers and Regulation A+

Posted in Events, Regulation A+

On Thursday, June 25, 2015, Morrison & Foerster Partner Anna Pinedo will be joined by Blake, Cassels & Graydon Partner Pamela Hughes to present “Canadian Issues and Regulation A+”.  On June 19, 2015, the Regulation A+ rules adopted by the U.S. Securities and Exchange Commission became effective. Regulation A+ provides an important capital-raising alternative for private companies in the United States and Canada, as well as for Canadian companies with securities listed on a domestic exchange. A Regulation A+ offering may be used in connection with a primary offering of newly issued shares by a company or to resell securities held by existing stockholders. Whether you are contemplating a Regulation A+ offering as a precursor to an IPO, as a liquidity opportunity for existing holders or as an alternative to a traditional IPO, you will need to understand the requirements of the final rule. This session, which will take place from 1:00 p.m. to 2:00 p.m. EDT, will discuss:

  • Tier 1 and Tier 2 offerings;
  • Regulation A+ Basics;
  • Disclosure, financial statement and other filing requirements;
  • Use by Canadian issuers that are non-reporting issuers in Canada;
  • Use by Canadian issuers that are listed in Canada:
  • Ongoing reporting requirements for Tier 2 issuers; and
  • Concurrent Regulation A+ and securities exchange listings in the United States.

CLE credit is pending.

To register for this session, or for more information, please email hlawrence@mofo.com.

SEC Denies Motion to Stay Regulation A+

Posted in Regulation A+

On June 5, 2015, Monica J. Lindeen, Montana State Auditor, ex officio Commissioner of Securities and Insurance, filed a motion with the SEC for a stay of the Regulation A+ rules, which are scheduled to become effective this Friday.  In an order issued on July 16, 2015, the Commission denied the Montana motion.  The Commission found that Lindeen did not demonstrate a strong likelihood of success on the merits of her claim that the Commission’s definition of “qualified purchaser” is “contrary to the plain meaning” of the JOBS Act and NSMIA, or on the merits of her claim that “the Commission insufficiently analyzed the costs and benefits of the Final Rule as it relates to the protection of investors.”

The Guide to Social Media and the Securities Laws

Posted in Resources

The growing use of social media has created challenges for federal securities regulators, who must enforce antifraud rules that were written at a time when the prevailing technology was the newspaper.

This Guide summarizes how federal regulation of securities has evolved in the face of the growing use of social media by investors, securities issuers, broker-dealers, investment advisers and investment companies. Given the fast pace of changes, this Guide is a work in progress.

Read our Guide to Social Media and the Securities Laws.

PLI Conference: Understanding the Securities Laws Summer 2015

Posted in Events, Private Placements

On July 23-24, 2015, Practising Law Institute will be hosting their 2015 conference titled “Understanding Securities Laws”. This program will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners and key SEC representatives. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, and related SEC regulations, and on how securities lawyers can solve practical problems that arise under them in the context of public and private offerings, SEC reporting, mergers and acquisitions and other common corporate transactions.

Morrison & Foerster Partner Anna Pinedo and Stuart Fishman of JPMorgan Chase & Co. will lead a session on the first day entitled “Securities Act Exemptions/Private Placements”. Topics of discussion will include:

  • Exempt securities versus exempt transactions;
  • Regulation D and Regulation A offerings and changes resulting from the JOBS Act;
  • “Crowd funding”;
  • Stock option grants and related issues;
  • Rule 144A high yield and other offerings; and
  • Regulation S offerings to “non-U.S. persons”.

PLI will provide CLE credit.

To register for this conference, or for more information, please click here.

Kauffman Foundation Study on Funding for Start-Ups

Posted in Crowdfunding, Start-Ups

In a recent edition of its Entrepreneurship Policy Digest, the Kauffman Foundation provides interesting data on the types of funding relied upon by emerging companies.  The report notes that approximately 40% of startup capital is in the form of bank debt.  The report also notes the increased reliance by entrepreneurs on online lending platforms.  For example, according to the report, in the first half of 2014, over 20% of startups applied for loans through these platforms.  The findings may be found here:

OTC Markets Adopts Rule Changes

Posted in Regulation A+

The OTC Markets has adopted rule changes for OTCQX and OTCQB to accommodate for Reg A + and require quarterly disclosure for the OTCQX marketplace.  See below.

OTCQB: http://www.otcmarkets.com/services/companies/otcqb/apply
OTCQX for U.S. Companies: http://www.otcmarkets.com/services/companies/otcqx-us/pricing
OTCQX for Banks: http://www.otcmarkets.com/services/companies/otcqx-banks/apply
OTCQX for International Companies: http://www.otcmarkets.com/services/companies/otcqx-international/pricing

The Section “4(a)(1-1/2)” Exemption

Posted in Advisory Committee on Smaller and Emerging Companies, SEC News

At last week’s SEC Advisory Committee on Small and Emerging Companies meeting, the Committee recommended that the SEC formalize the exemption in order to promote capital formation.    Currently, there also is a pending bill, the RAISE Act, which would provide a statutory exemption that mimics the informal exemption as it has developed over time.  Given that oftentimes affiliates of issuers are not able to rely on Rule 144, the informal exemption that has evolved over time facilitates private resales from institutional or accredited investors in a transaction that does not involve any general solicitation.  Formalizing the exemption would provide greater legal certainty for these transactions.

See here the Advisory Committee’s recommendation:  http://www.sec.gov/info/smallbus/acsec/recommendation-section-4-a-1.5-exemption.pdf

FINRA Research Rule Guidance: The New Stages of Grief

Posted in FINRA, IPO On-Ramp, Research

Many market participants were left in a quandary following FINRA enforcement actions in connection with member firm research analyst “participation” in meetings with prospective issuers.  Recently, FINRA published a handful of Frequently Asked Questions relating to its research rules (see:  http://www.finra.org/industry/faq-research-rules-frequently-asked-questions-faq).  The FAQs outline three stages of an IPO a pre-IPO period, a solicitation period, and a post-mandate period.  Each such stage is described in the FAQs and FINRA also describes the attendant risks associated with a research analyst’s activities during these various stages.  Of course, during the pre-IPO stage, the attendant risks are attenuated and FINRA believe that these attenuated risks can be addressed adequately through properly designed policies and procedures.  However, FINRA cautions that member firms ought to be sensitive to any communications that would suggest the issuer already had determined to proceed with an IPO.  The guidance also provides FINRA’s view regarding when the “solicitation period” would be deemed to begin, although this would seem, in real life, to be a highly fact-specific matter.  In the post-mandate period, again, the risks are attenuated, in FINRA’s view, and may be effectively addressed by member firms through their policies and procedures.  The guidance is particularly strident with respect to valuation analyses.  For example, the FAQs note that a member firm that is competing for an IPO role must repudiate any communication that would seemingly indicate that a valuation reflects the analyst’s views and expressly note that the firm cannot make any representations about the analyst’s views on valuation.

SEC Advisory Committee Agenda Published

Posted in Advisory Committee on Smaller and Emerging Companies, Crowdfunding, Public Companies, SEC News

The SEC announced that the next meeting held on June 3rd of its Advisory Committee on Small and Emerging Companies will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and treatment of “finders.”  The Committee also will vote on a recommendation to the Commission regarding the “Section 4(a)(1½) exemption” sometimes used by shareholders to resell privately issued securities.  This topic was initially discussed at the committee’s March 4 meeting.  The exemption is the subject of proposed legislation, titled the RAISE Act, and sponsored by Congressman McHenry.  See the SEC’s notice here:  http://www.sec.gov/news/pressrelease/2015-101.html

SEC Approves Tick-Size Pilot

Posted in SEC News

The SEC recently approved a proposal by the national securities exchanges and FINRA for a two-year pilot program to widen tick sizes for prices of certain smaller company common stock.  The SEC adopted the tick size pilot following its study of tick sizes pursuant to Section 106 of the JOBS Act.  In June 2014, the SEC ordered the national securities exchanges and FINRA to develop and file a proposal for a tick size pilot program.  On August 26, 2014, the SEC announced that the national securities exchanges and FINRA had filed a proposal to establish a national market system plan to implement a targeted tick-size pilot program.  The two-year tick size pilot that the SEC approved, which included a number of changes from the proposed pilot submitted to the SEC,  will begin by May 6, 2016.

The tick size pilot will include stocks of companies with $3 billion or less in market capitalization, an average daily trading volume of one million shares or less, and a volume weighted average price of at least $2.00 for every trading day. The pilot will consist of a control group of approximately 1,400 securities and three test groups with 400 securities in each, which will be selected by a stratified sampling.  During the pilot: (i) the control group will be quoted at the current tick size increment of $0.01 per share and will trade at the currently permitted increments; (ii) the first test group will be quoted in $0.05 minimum increments but will continue to trade at any price increment that is currently permitted; (iii) the second test group will be quoted in $0.05 minimum increments and will trade at $0.05 minimum increments subject to a midpoint exception, a retail investor exception, and a negotiated trade exception; and (iv) the third test group will be subject to the same terms as the second test group and also will be subject to the “trade-at” requirement to prevent price matching by a person not displaying at a price of a trading center’s best “protected” bid or offer, unless an enumerated exception applies. In addition to the exceptions provided under the second test group, an exception for block size orders and exceptions similar to those under Rule 611 of Regulation NMS will apply.

According to the SEC, the exchanges and FINRA will submit their initial assessments on the tick size pilot’s impact 18 months after the pilot begins, based on data generated during the first 12 months of its operation.