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FinTech Forum Silicon Valley: Balancing Innovation & Consumer Protection

Posted in Events, FinTech

Wednesday, September 21, 2016
8:00 a.m. – 5:30 p.m. PDT

Plug and Play Tech Center
440 N. Wolfe Road
Sunnyvale, CA 94085

Morrison & Foerster invites you to attend The George Washington University Law School’s Center for Law, Economics & Finance’s FinTech Forum Silicon Valley at Plug and Play Tech Center in Sunnyvale, California. Morrison & Foerster is co-sponsoring this event to bring together industry leaders, academic experts, government regulators, and legal scholars in the heartland of innovation.

Financial Technology, or FinTech, refers to a spectrum of technology innovations and startups that demonstrate disruptive potential in applications, processes, products, or business models in the financial industry. Morrison & Foerster’s tech acumen and entrepreneurial spirit, together with our financial services regulatory expertise and capital-raising experience, put us at the center of developments in the FinTech sector. Our financial services regulatory group provides innovative advice to companies focused on payments, remittances, marketplace lending, and digital currencies. Few firms bring together capabilities in each of these areas to guide FinTech companies on their path to success.

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

Please contact cbaker@mofo.com for a promotional code for free admission.

House Debate Scheduled for Bills Relating to Capital Access for Small Business

Posted in Capital Formation, House Financial Services Committee, Private Placements, Regulation D, SEC News

Next week, the House is scheduled to debate two bills designed to reduce regulatory burden on small businesses in order to facilitate access to capital.  H.R. 5424, the Investment Advisers Modernization Act, was approved by the Financial Services Committee on June 16, 2016.  H.R. 2357, the Accelerating Access to Capital Act, was approved by the Financial Services Committee on May 20, 2016.  H.R. 2357 will also consist of two other bills, H.R. 4850 and H.R. 4852.

  • H.R. 5424 proposes to amend the Investment Advisers Act of 1940 and directs the Securities and Exchange Commission to amend its rules to modernize certain requirements relating to investment advisers.
  • H.R. 2357 proposes to direct the Securities and Exchange Commission to revise Form S-3 so as to permit securities to be registered pursuant to General Instruction I.B.1. of the form if either: (1) the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant is $75 million or more, or (2) the registrant has at least one class of common equity securities listed and registered on a national securities exchange.
  • Incorporated into H.R. 2357, H.R. 4850, the Micro Offering Safe Harbor Act, proposes to amend the Securities Act of 1933 to exempt certain micro-offerings from the Act’s registration requirements.  To qualify for the exemption (1) each purchaser has a substantive pre-existing relationship with an owner; (2) there are 35 or fewer purchasers; and (3) the amount does not exceed $500,000.  H.R. 4852, Private Placement Improvement Act of 2016, proposes to direct the SEC to revise the filing requirements of Regulation D (which provides exemptions from securities registration requirements) to require an issuer that offers or sells securities in reliance upon a certain exemption from registration to file, no earlier than the date of first sale of such securities, a single notice of sales containing the information required by Form D for each new offering of securities.

Financial Services Committee Chairman Jeb Hensarling noted that “[t]hese bills are solutions that will more appropriately balance rules with the urgent need to provide small businesses with greater access to capital so they can start up, hire workers and grow.”

Hyperlinking to Exhibits

Posted in Disclosure Requirements, SEC News

Earlier this week, as part of the continuing Disclosure Effectiveness initiative, the SEC released a proposed rule for comment that would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of the filings. The amendments would also require that registrants submit all of these filings in HTML format.  Currently, registrants list out exhibits and it often is time-consuming to trace back to identify when the registrant filed an exhibit that’s been incorporated by reference to a prior filing.  Here is the link to the proposed rule, which is subject to a 45-day comment period:  https://www.sec.gov/rules/proposed/2016/33-10201.pdf.

SEC Requests Comments on Regulation S-K Relating to Disclosures on Management, Certain Security Holders and Corporate Governance Matters

Posted in Disclosure Requirements, SEC News

On August 25, 2016, the SEC issued a release requesting comments on certain disclosure requirements under Regulation S-K relating to disclosures on management, certain security holders and corporate governance matters contained in Subpart 400.  This request is part of an initiative by the SEC’s Division of Corporation Finance to review the disclosure requirements under Regulation S-K in order to consider ways to improve them for the benefit of investors and registrants.  The SEC also indicated that comments received in response to its request for comment will also inform the SEC’s study on Regulation S-K, which is required under Section 72003 of the Fixing America’s Surface Transportation Act (FAST Act).  Subpart 400 of Regulation S-K contains the following items:

  • Item 401: generally requires certain disclosures about a registrant’s directors, executive officers, promoters and control persons, or persons performing similar functions, and, if it has not adopted such a code of ethics, an explanation why it has not done so.
  • Item 402: generally requires disclosure of all plan and non-plan compensation awarded to, earned by, or paid to a registrant’s named executive officers and directors.
  • Item 403: generally requires a description of the security ownership of certain beneficial owners and management.
  • Item 404: generally requires a description of certain transactions with related persons, promoters and certain control persons.
  • Item 405: generally requires a registrant to identify certain persons who failed to file on a timely basis, as disclosed in certain forms or reports required by Exchange Act Section 16(a) during the most recent fiscal year or prior fiscal years.
  • Item 406: generally requires disclosures about whether the registrant has adopted a code of ethics that applies to certain of the registrant’s executive officers, or persons performing similar functions, and, if it has not adopted such a code of ethics, an explanation why it has not done so.
  • Item 407: generally requires certain corporate governance disclosure about director independence, board meetings, various board committees (e.g., nominating, audit and compensation committees) and any process for shareholder communications.

The deadline for submitting comments to the SEC is the date 60 days after publication of the release in the Federal Register.

The SEC release is available at: https://www.sec.gov/rules/other/2016/33-10198.pdf

Capital Markets and Securities FAQs – 11th Edition

Posted in Resource, Welcome












We can help you keep your head above water.

Sometimes the water is deep and can get choppy. You may find that the 11th edition of our Capital Markets and Securities FAQs can help you get to firm ground.

The FAQs (or Frequently Asked Questions), written and published by MoFo lawyers, provide plain English explanations of the most popular types of financing or capital formation transactions, as well as discussions of securities law issues.

To request a copy of the new FAQ books for you or for your colleagues, e-mail tstarer@mofo.com.

PLI Seminar: Marketplace Lending and Crowdfunding 2016

Posted in Crowdfunding, Events

2015 saw the transformation of marketplace lending from a FinTech fad to a bona fide change in the way consumers and small businesses access credit. As the industry continues to mature and evolve, more changes are on the horizon, including new business practices and regulatory challenges. Crowdfinance has also developed and diversified.

At this year’s PLI Marketplace Lending and Crowdfunding seminar on September 9, 2016, Partner James R. Tanenbaum will speak on a panel entitled “Legal Issues for Equity Crowdfunding Platforms.” 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 new FAST Act and Section 4(a)(7).

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

Practice Pointers on Non-GAAP Financial Measures

Posted in C&DI, Disclosure Requirements, SEC News

The use of non-GAAP financial measures by public companies continues to be an area of growing concern and focus of the Securities and Exchange Commission (“SEC”). On June 27, 2016, SEC Chair Mary Jo White, speaking at the International Corporate Governance Network’s Annual Conference in San Francisco, lamented that “[i]n too many cases, the non-GAAP information, which is meant to supplement the GAAP information, has become the key message to investors, crowding out and effectively supplanting the GAAP presentation.” That sentiment has been shared by senior SEC staff and articulated in recent speeches and pronouncements by James Schnurr, the SEC’s Chief Accountant, Wesley R. Bricker, the SEC’s Deputy Chief Accountant and Mark Kronforst, the Chief Accountant in the SEC’s Division of Corporation Finance.

More importantly, on May 17, 2016, the staff of the SEC’s Division of Corporation Finance (the “Staff’) issued updated Compliance and Disclosure Interpretations (the “Updated C&DIs”) on the use of non-GAAP financial measures. The Updated C&DIs build on previous C&DIs issued by the Staff in 2011, 2010 and 2003 and provide further SEC guidance on Regulation G (“Regulation G”) under the Securities Act of 1933, as amended (the “Securities Act”), and Item 10(e) of Regulation S-K under the Securities Act (“Regulation S-K”), the two principal rules enacted by the SEC in 2003 to address the use of non-GAAP financial measures.

Over the past few months, we have noticed an increase in the number of SEC comments to public companies relating to their non-GAAP financial measures disclosures. With the recent SEC focus on this topic and the release of the Updated C&DIs, registrants must be extra careful in their public disclosures and filings to ensure they are complying with Regulation G, Item 10(e) of Regulation S-K and the Updated C&DIs.

In our latest “Practice Pointers on Non-GAAP Financial Measures,” we discuss the nature of non-GAAP financial measures, the disclosure rules governing them, and the Updated C&DIs. We also look at some recent SEC comment letters addressing non-GAAP financial measures and offer some practical guidance for public companies to comply with the updated SEC guidance.

For more information, see our “Practice Pointers on Non-GAAP Financial Measures” available at: https://media2.mofo.com/documents/160816-practice-pointers-on-non-gaap-financial-measures.pdf

The Role of BDCs in the Middle Market

Posted in BDCs

Business development companies (“BDCs”) provide an important and growing alternative source of capital to small and middle market companies that may not otherwise have access to bank financing.  However, BDCs have been facing challenges raising money partly due to the recent decline of institutional ownership resulting from (1) the requirement of the SEC for registered open-end funds to disclose “acquired fund fees and expenses” (“AFFE”) of other funds they invest in (including BDCs) and (2) the limitation under Section 12(d)(1) of the Investment Company Act of 1940 (“Section 12(d)(1)”) of the ability of other registered investment companies (including exchange-traded funds) to acquire more than 3% of a BDC’s total outstanding stock.  In addition, the recent release of the U.S. Department of Labor’s final fiduciary rule (the “DOL final rule”) will likely result in ERISA plans avoiding investments in BDCs, whether directly or indirectly through an index.  The recent decline of institutional ownership in BDCs has negatively impacted the ability of BDCs to provide capital to small and middle market companies, although the increasing use of unitranche financing has created new financing opportunities for middle market companies.

For more information regarding the disclosure of AFFE, see our client alert:
Acquired Fund Fee Expenses and Business Development Companies.”

For more information regarding Section 12(d)(1), see our client alert:
Section 12(d)(1) and Business Development Companies.”

For more information regarding the DOL final rule, see our client alert:
Impact of DOL’s Final Rule on Business Development Companies.”

For more information regarding unitranche financing, see our article:
Developments in Unitranche Financing (2016).”

SEC Revises C&DI on Selling Securityholder Disclosure

Posted in C&DI, Disclosure Requirements, SEC News

On July 26, 2016, the SEC revised Question 140.02 of its Compliance and Disclosure Interpretations (“C&DIs”) on Regulation S-K, pertaining to selling securityholder disclosure.  Revised Question 140.02 states that a registrant must disclose for any selling securityholder that is not a natural person, in addition to any material relationships between the registrant and such selling securityholder, the information required under Item 507 of Regulation S-K regarding any persons (entities or natural persons) who:

  • have control over such selling securityholder; and
  • have had a material relationship with the registrant or any of its predecessors or affiliates within the past three years.

In such case, the registrant must identify each such person and describe the nature of any relationships.  Previously, if a selling securityholder was not a natural person, a registrant only needed to identify in its registration statement the person or persons who had voting or investment control over the registrant’s securities owned by such selling securityholder.  In addition to revising Question 140.02, the SEC concurrently withdrew Question 240.04, which had stated that an issuer with a resale registration statement naming several investment funds as selling shareholders must name the natural persons who have or share voting or investment power for each fund as part of its Item 507 disclosure, even if voting or investment power for any fund is controlled by an investment committee consisting of a large number of individuals who each have a vote to approve the exercise of such power.

Revised Question 140.02 is available at:  https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#140.02.

Late-Stage Private Placements: A Life Sciences Sector Survey

Posted in IPO On-Ramp, JOBS Act News, Late Stage Investments, Private Placements, Resource

As privately held companies choose to remain private longer and defer their initial public offerings (IPOs), these companies are increasingly reliant on raising capital in successive private placements. For companies in the life sciences sector, for instance, a late-stage private (or mezzanine) placement made to known and well-regarded life science investors may serve to validate the company’s technology. We have compiled data on late-stage private placements in the life sciences sector.

Read our Life Sciences Sector Survey of Late-Stage Private Placements for more information.