MoFo is rolling out the classics—MoFo Classics Series, that is. These two CLE sessions will focus on developments in the private placement market. Mark your calendar for these in-person only sessions, held at our New York office from 8:30 a.m. to 9:30 a.m.

Private Placement Market Developments – Thursday, September 14, 2017
Morrison & Foerster LLP
250 West 55th Street
New York, NY 10019

During this session, we will discuss developments affecting private placements, including:

  • Increased reliance on Section 4(a)(2) instead of the Rule 506 safe harbor;
  • Addressing no registration opinions;
  • Bad actor diligence for issuers and placement agents;
  • Diligence and the use of “big boy” letters;
  • FINRA Rule 5123 updates;
  • FINRA and SEC enforcement developments affecting private placements; and
  • Nasdaq’s 20% rule.

Late Stage Private Placements – Tuesday, September 19, 2017
Morrison & Foerster LLP
250 West 55th Street
New York, NY 10019

Successful privately held companies considering their liquidity opportunities or eyeing an IPO often turn to late stage private placements. Late stage private placements with institutional investors, cross-over investors and strategic investors raise a number of considerations distinct from those arising in earlier stage and venture financing transactions. During this session, we will discuss:

  • Timing and process for late stage private placements;
  • Terms of late stage private placements;
  • Principal concerns for cross-over funds;
  • Diligence, projections and information sharing;
  • IPO and acquisition ratchets;
  • Governance issues;
  • The placement agent’s role; and
  • Planning for a sale or an IPO.

NY and CA CLE credit is pending for both sessions.

To register, please click here.

On July 31, 2017, S&P Dow Jones Indices (“S&P”) issued a press release announcing a methodology change for multi-class shares following its consultation published on April 3, 2017.  The S&P Composite 1500 and its component indices will no longer add companies with multiple share class structures, such as Snap Inc. and Blue Apron Holdings, Inc.  The methodology change is effective immediately.  However, existing constituents of the S&P Composite 1500 will be grandfathered in and will not be affected by the methodology change, such as Alphabet Inc. and Facebook, Inc.  The S&P Global BMI Indices and S&P Total Market Index will continue to include companies with multiple share classes or with limited or no shareholder voting.  S&P noted that unlike the S&P Global BMI Indices and S&P Total Market Index, the S&P Composite 1500 (comprised of the S&P 500, S&P MidCap 400 and S&P SmallCap 600) follows more restrictive eligibility rules including a minimum float of 50% and positive earnings as measured by GAAP.  S&P also clarified that the methodologies of other S&P and Dow Jones branded indices remain unchanged.

A copy of the S&P press release is available here.

On July 27, 2017, Ranking Member of the House Committee on Financial Services, Congresswoman Maxine Waters, introduced the Bad Actor Disqualification Act of 2017.  This draft legislation directs the SEC to implement more rigorous and public processes for granting waivers that restore certain benefits to bad actors.  These benefits include reduced oversight, reduced disclosure requirements and limited liability.  The current draft of the bill specifically requires:

  • that the waiver process be conducted and voted on at the Commission level, rather than staff level;
  • that the SEC consider whether granting a waiver would protect investors, be in the public’s interest and promote market integrity;
  • that the SEC to publish notice and allow for public comment on whether a particular waiver will be approved or denied; and
  • that the SEC create a public database of all disqualified actors and keep complete/public records of all waiver requests.

This legislation follows the Congresswoman’s previous legislation from 2015 aimed at reforming the SEC’s waiver approval process, which was in response to a 2014 study that concluded that 82% of waivers were granted to financial firms in the last 11 years.

The full text of the bill can be found here.

Global fintech venture capital-backed financings are on course to hit record highs, according to a recent research briefing by CB Insights. For the first half of 2017, there have been 496 VC-backed financings that raised over $8.0 billion for fintech companies around the world. U.S. fintech issuers represented almost 40% of the total number of fintech financings in the first half of the year with 198 deals raising $3.1 billion.

Financings for blockchain and bitcoin companies globally in the first half of 2017 raised $343 million over 36 deals. Wealth tech company financings, which include robo-advisors and mobile investing platforms, raised $661 million across 33 financings. Financings for insurance tech companies accounted for over 15% of financings by number of deals, raising $826 million over 76 deals.

There are now 26 fintech unicorns, companies with a valuation of over $1 billion, which include 15 U.S.-based fintech companies. This follows an ongoing trend of privately held companies choosing to remain private longer. Late-stage investments have been ever more present with companies going through multiple rounds of financings due to increased access to capital. Both global and U.S. late-stage investments in fintech companies hit five-quarter highs, with a median deal size of $34 million and $38.5 million, respectively.

To see CB Insight’s full report, click here.

In our Practising Law Institute treatise Exempt and Hybrid Securities Offerings, we refer to the concept of “integration” under the securities law as a bogeyman of sorts for practitioners. In this day and age of tweets and posts, and where public and “private” offerings are hard to distinguish from one another, is the concept of integration antiquated? Or is it perhaps due for a comprehensive re-examination by the Securities and Exchange Commission? As we discuss below, many of the fundamental principles of integration of offerings, aggregation of offerings for purposes of securities exchange rules, and communications issues like “gun-jumping” and “quiet periods” may have been so eroded as to no longer be meaningful.

To view our article, click here.

This article has been published in The Current: The Journal of PLI Press, Vol. 1, No. 1, Summer 2017 (© 2017 Practising Law Institute).

On Tuesday, July 25, 2017, SEC Chairman Jay Clayton spoke at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC). During the panel, Chairman Clayton discussed the Commission’s priorities on a variety of issues.

Bad Actors/Retail Fraud. Chair Clayton noted the substantial costs of the effects of a bad actor and the costs of restoring faith in our capital markets. He also made it clear that there would be no tolerance for retail fraud under his tenure.

Enforcement. Chair Clayton noted that the Commission has increased the use of data to determine more effective ways to target exams, taking into consideration to whom to issue an exam, how to conduct the exam and whether the Commission is being effective in these examinations.

Proxy Reports/Disclosure Effectiveness. Chairman Clayton noted that adding disclosure does not signal better disclosure. The Chairman stressed that disclosure should be written to protect the investor rather than be written in case of a court appearance.

Reduction in Number of Public Companies. The Chairman stressed that the Commission would not do anything to inhibit private capital formation. He cited a recent meeting with a number of small- and mid-cap companies where they discussed the timing of their respective IPOs. Chairman Clayton noted that having both a healthy public capital market and a private equity market provides companies with financing options, facilitates capital formation and provides healthy and necessary market competition.

Lifecycle of a Company. Chairman Clayton referenced that, in the past, the general public used to be able to participate in the growth of a company, but in our current environment, Main Street has a limited ability to participate. He noted that it is difficult to offer private investment opportunities to individual investors in a cost effective way.

Effectiveness of the U.S. Capital Markets. The Chairman noted that the U.S. capital markets are efficient for large-cap companies, but Chairman Clayton noted that there is room for improvement for mid- and small-cap companies. The Chairman outlined a number of factors affecting the effectiveness of the U.S. capital markets for smaller companies, including liquidity in the secondary trading markets and the costs of being a public company.

Costs of Compliance. Chairman Clayton acknowledged the Commission’s need to keep in mind the costs of compliance when writing rules, given that compliance can be very costly depending on how the rule is written.

Pay Ratio Rule. The Chairman noted that the Commission will be reviewing the rule but recognizes that the compliance date is coming.

Best Interest Standard. The Chairman directly stated that he would be disappointed if there were any reductions in choices for the individual investor relating to the best interest standard. The Chairman noted that, with the DOL’s Fiduciary Rule on the books, having differing standards for individual investors would not make sense. He then noted that the market would benefit from greater clarity on this issue. Chairman Clayton stressed that the Commission wants the best for the main street investor and is hopeful that common ground exists between the DOL and the Commission’s mandates.

Coordination Among Domestic Regulators. Chairman Clayton acknowledged the cooperative nature between the Commission and other domestic regulators such as FSOC and the CFTC. The Chairman stressed, however, that there should be no gaps between the various regulatory rules, no duplication and that regulators should not be asking for the same information in different ways. He noted that his colleagues at the other regulators share this view. Specifically, the Chairman confirmed that the Commission is engaged with the CFTC on this issue, given that these two entities oversight sometimes overlaps.

Cyber Security. The Chairman stressed that coordination among regulators is very important when it comes to cyber security and that regulators should be developing standards in order to effectively respond to these incidents. He acknowledged that fellow regulators are very open to cooperation and indeed see the need for this cooperation. The Chairman also addressed the issue of punishing victims of a cyber attack. He noted that if a company was acting responsibly in terms of protections and disclosures, regulators should not be punishing them for being victims.

International Harmonization. Chairman Clayton noted that it is part of the Commission’s mission to handle international coordination of regulation as more U.S.-based companies become global companies and participants. The Chairman specifically acknowledged the Commission’s preparation for the implementation of MiFIID II and for any issues that might arise from the rule.

Materiality. Chairman Clayton also touched on the issue of materiality during the Q&A portion. The Chairman noted that having a flexible materiality standard is useful given that, when a court is determining materiality, the determination is reflective of the substantial difference between certain projects.  In this instance, the Chairman was referencing the municipal bond space when discussing materiality.

In closing, the Chairman thanked former Chairman of the Commission Mary Joe White and Commissioner Michael Piwowar for their service.

The House Financial Services Committee met on Tuesday, July 25, 2017 and approved four bipartisan bills. Among them, H.R. 2864, the Improving Access to Capital Act, was approved by the Committee by a vote of 59-0.

The bill proposes to amend Regulation A to remove the requirement that an issuer not be subject to certain reporting requirements under the Securities Exchange Act of 1934, immediately before an offering. The bill also proposes to amend Tier 2 offering reporting requirements under the Securities Exchange Act of 1933.

The legislation was introduced in an effort to allow for a streamlined SEC review process and promote capital raising for smaller reporting companies. The full bill text can be found here.

Practical Law Company recently reviewed trends in the U.S. IPO market for the first half of 2017.  In the first five months of 2017, 46 IPO issuers identified themselves as emerging growth companies (EGCs). Under the JOBS Act, EGCs are able to confidentially submit draft registration statements prior to a public filing. Of the 46 EGC IPOs issuers, all but one submitted draft registration statements to the SEC. The first public filing followed, on average, 141 days after their draft filing. 12 of the 46 EGC IPO issuers were foreign private issuers (FPIs) and also submitted confidential draft registration statements.

Of the 46 EGC IPO issuers, 31 included two years of audited financial statements. For EGCs, including two instead of three years of audited financial statements is permitted under the JOBS Act. 14 EGC issuers included three years of audited financials, opting not to take advantage of the JOBS Act accommodation. Six FPIs elected to prepare their financial statements following the International Financial Reporting Standards (IFRS), while the other six opted for the US’s Generally Accepted Accounting Principles (GAAP).

To read Practical Law’s full article, click here.

September 7, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

With the Title III federal public crowdfunding provisions of the JOBS Act finally becoming fully effective in May 2016 and a new administration, what does the future hold for marketplace lending and crowdfunding? Will it be a boom or bust? Will Regulation A+ start to pick up speed and grow into the potential many predicted? Will Marketplace Lending finally have a principal regulator or will it continue to have its heels nipped by a patchwork of state and federal rulemakers and the courts?

Partner Anna Pinedo will speak on a panel entitled “Challenges in Running an Equity Crowdfunding Platform.” Topics will include:

  • Crowdfunding under Title II – Solicitation vs. Non-Solicitation;
  • “Reasonable Steps to Verify”;
  • The preexisting relationship and CitizenVC: Myth vs. Facts;
  • Working with broker-dealers and other intermediaries; and
  • Liquidity and secondary markets including the FAST Act and Section 4(a)(7).

PLI will provide CLE credit.

For more information, or to register, please click here.

On July 18, 2017, President Donald Trump announced his intent to nominate Ms. Hester Maria Peirce as a Commissioner of the Securities and Exchange Commission for the remainder of a five-year term expiring June 5, 2020.  This would be President Trump’s second nomination to the SEC, the first being the nomination of Mr. Jay Clayton as Chair of the SEC in January 2017.  If confirmed, Ms. Peirce would occupy one of the remaining two vacant Commissioner seats at the SEC.

See the White House press release on the nomination here.