We invite you to download a free copy of the updated edition of our book, or to request free hard copies for you and your colleagues.

Foreign Banks Financing in the United States, published by IFLR, provides a timely discussion of the approaches used by foreign banks to raise capital from US investors.

Foreign banks may rely on exempt offerings, such as 4(a)(2) offerings, 144A/Reg S offerings and 3(a)(2) offerings, or registered offerings to issue securities to US investors. We discuss each of the possible offering formats, as well as the practical considerations for issuers and their intermediaries when establishing or accessing a medium-term note program, a commercial paper program, a covered bond program, or a structured products program.

As foreign banks contemplate the potential need to raise additional capital, this guide offers an overview of regulatory consideration.

To download the book, please click here.

To request hard copies, please email Alexa Powers at alexapowers@mofo.com.

On the same day that the SEC adopted changes to Rule 506 and Rule 144A in order to relax the prohibition against general solicitation, the SEC proposed for comment amendments to Form D, Regulation D and Rule 156.  These proposed rules were met with an extraordinary number of comments given that many felt that the proposed changes to the Form D filing requirements and the proposed changes to the content requirements of Form D would impose significant burdens on issuers.  However, in recent weeks, the tide seems to have turned.  Some commentators have called on the SEC to take action to move forward with the proposed rules.  For example, in a speech (available here:  http://www.sec.gov/News/Speech/Detail/Speech/1370540451723), Commissioner Aguilar focused on investor protection concerns.  He stated that:  “It is now almost five months since those proposals were issued for public comment.  I urge the Commission to move forward promptly to adopt the proposed rules. Doing so will not only provide a number of important investor protections that were unjustifiably omitted when the general solicitation rule was adopted, it will also provide the Commission’s staff with the necessary tools to assess whether that change has actually had the desired effect on capital formation. Every day these proposals are not adopted is another day that investors face greater harm.”  Similar views were expressed in a comment letter from Senator Levin to the Commission (available here: http://www.mofo.com/files/Uploads/Images/131205-USSENATE70613-480.pdf) regarding the proposed amendments.  Senator Levin’s letter suggests that the SEC impose requirements beyond those contained in the proposed amendments.  Could this be a sign of things to come?

On November 13, 2013, the SEC issued 11 new Compliance & Disclosure Interpretations regarding Rule 144A and Rule 506(c).  For our readers’ convenience, we have put the 11 new C&DIs in their own document [http://www.mofo.com/files/Uploads/Images/131113-SEC-CDIs-re-Rule-506c-and-Rule-144A.pdf].  As with previous C&DIs, many of the new ones confirm positions that the SEC has already taken in other statements, but it is very beneficial to gather these positions in one place.  The two new Rule 144A C&DIs confirm that initial purchasers as well as issuers may engage in general solicitation and that, as provided in the adopting release, Rule 144A general solicitation does not change how directed selling efforts under Regulation S are analyzed.  The nine new Rule 506(c) C&DIs address:

  • Filing requirements for a Form D for a Rule 506(b) offering commenced before September 23, 2013, the effective date for the new Rule 506(c) exemption, when the issuer proposes to change to a Rule 506(c) offering;
  • Issues surrounding reasonable steps to verify accredited investor status, including:
    • the issuer can still sell to an investor if the issuer took reasonable steps to determine accredited investor status and had a reasonable belief that the investor was an accredited investor and afterwards discovers that the investor was not an accredited investor at the time of sale;
    • the inability to rely on Rule 506(c) if the issuer does not take reasonable steps to verify accredited investor status even if all the investors were in fact accredited investors;
    • the documentation for the net worth verification method must be as of a date within three months prior to the time of sale of the securities;
    • the third party verification method may include written verifications from non-U.S. registered or licensed attorneys and certified public accountants;
    • the verification method for existing investors is limited, by its terms, to existing investors who purchased securities in the same issuer’s Rule 506(b) offering prior to September 23, 2013, as opposed to two different issuers with a sponsor in common – this will be a particular hardship for funds and other entities that have families of issuers;
  • The ability to switch from a Rule 506(b) offering to a Rule 506(c) offering, and vice versa, so long as the conditions of the applicable rule are satisfied; and
  • The ability to switch from a Rule 506(c) offering to a Section 4(a)(2) offering is limited to those situations where there has not been any general solicitation.

As we reported in a previous post (http://www.mofojumpstarter.com/2013/09/20/trace-dissemination-of-144a-data/), the SEC approved amendments to FINRA Rules 6750 and 7730, and TRACE dissemination procedures for Rule 144A trade data. FINRA has announced (see: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p375662.pdf) that these amendments will go into effect beginning June 30, 2014.

Last Monday, the 80-year ban on the use of general solicitation in certain exempt securities offerings was relaxed. General solicitation can now be used in private offerings conducted under Rule 506(c) of Regulation D and Rule 144A under the Securities Act. While the dust has yet to settle, we have already seen several examples of how such solicitation can be conducted.

  • Email. It’s hardly a surprise that today’s most ubiquitous form of communication is being used to advertise investment opportunities to the general public. Thus far, such emails are primarily being sent to individuals with a pre-existing relationship with the sender. For example, Betaworks, a product development company, has solicited investments from its community of thousands of beta testers. Similarly, Tim Ferriss, an early investor in Facebook and Twitter, has asked the 1.4 million monthly readers of his blog to invest alongside him in his next endeavor.
  • Online Pitches. Pitches traditionally conducted behind closed doors can now be streamed online for the world to see. Flashstarts, a Cleveland-based startup accelerator, scheduled its “demo day” for last Monday so that its companies could pitch the world through a live broadcast.
  • Online Matchmaking Sites. Online matchmaking sites have been connecting companies and accredited investors for several years. However, such sites have been operating as closed communities, with investment opportunities accessible only to accredited investors registered with the site. However, as of last Monday, companies can now make investment opportunities publicly available.  There are now over 1,000 investment opportunities publicly listed on AngelList.   

After an 80-year ban on general solicitation, it will obviously take longer than a week for market norms to develop, and we’ll continue to monitor the evolving landscape.

The SEC recently approved FINRA’s rule change to permit dissemination of trade data for 144A bonds on TRACE (see: http://www.sec.gov/rules/sro/finra/2013/34-70345.pdf).  FINRA will publish a regulatory notice within 60 days of the rule approval, which was earlier this month, providing additional details.  As we previously reported in an earlier post, the relaxation of the prohibition on general solicitation mandated by the JOBS Act made the decision to disseminate trade data for 144A deals simpler.

Certain dissemination caps (applicable now to bond deals) will apply – $5 million for Investment Grade corporate bonds and $1 million for Non-Investment Grade – to Rule 144A corporate bond transactions.   As a result, the size of a Rule 144A Investment Grade corporate bond transaction in excess of $5MM would be displayed as “$5MM+” and the size of a Rule 144A Non-Investment Grade corporate bond transaction in excess of $1MM would be displayed “$1MM+.”

On Thursday, October 3, 2013, Morrison & Foerster partner Anna Pinedo will participate in a complimentary Bloomberg Law Event entitled “Outlook on Securities—The JOBS Act”. The seminar will focus on the latest developments in JOBS Act rulemaking by the Securities and Exchange Commission. For more information about the event, and to register, please visit: http://about.bloomberglaw.com/events/outlook-on-securities-the-jobs-act/.

Morrison & Foerster, together with Practical Law Company, presented a webcast on the new general solicitation rules.

The webcast analyzed the impact of the SEC’s removal of the ban on general solicitation in certain private offerings that was required by the JOBS Act. The program also discussed conducting Regulation D and 144A offerings going forward, related changes to Form D and bad actor disqualifications and how established companies, startups and private funds can protect themselves while taking advantage of the new rules.


  • David M. Lynn
  • Anna T. Pinedo

To view a recording of the webcast, please visit: https://event.webcasts.com/viewer/event.jsp?ei=1019684.

To download a copy of the slides, please visit: http://www.mofo.com/What-Do-the-New-General-Solicitation-Rules-Really-Mean-for-Private-Capital-Raising-07-18-2013/.

This morning, the SEC adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to implement Section 201(a) of the JOBS Act.  The SEC adopted new paragraph (c) in Rule 506, which would permit the use of general solicitation and general advertising, subject to the following conditions:

  • the issuer must take reasonable steps to verify that the purchasers of the securities are accredited investors;
  • all purchasers of securities must be accredited investors, either because they come within one of the enumerated categories of persons that qualify as accredited investors or the issuer reasonably believes that they qualify as accredited investors, at the time of the sale of the securities; and
  • the conditions of Rule 501 and Rules 502(a) and 502(d) are satisfied.

The Staff indicated that “reasonable efforts” to verify investor status will be an objective determination by the issuer based on the SEC’s principles-based guidance.  In its proposed rules, the SEC had noted that “reasonable efforts” to verify investor status should consider the nature of the purchaser; the nature and amount of information about the purchaser; and the nature of the offering.  In a departure from the proposed rules, the final rule will provide a non-exclusive list of factors to consider in verifying the accredited investor status of natural persons.  Following the initial proposal, many commenters had advocated that a “safe harbor” be established to establish legal certainty that the verification process had been sufficiently robust.  Including this illustrative list as part of the rule will likely prove helpful, even if it does not go as far as some commenters had requested.

In addition to the changes adopted to Rule 506, the SEC amended Rule 144A to eliminate references to “offer” and “offeree,” and as a result Rule 144A will require only that the securities are sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB.  Under this amendment, resales of securities pursuant to Rule 144A could be conducted using general solicitation, so long as the purchasers are limited in this manner.

Commissioner Luis Aguilar strongly opposed the new rules, saying he was “saddened and disappointed” that the new rules did not do more to protect investors.

On Wednesday, July 10, the Securities and Exchange Commission will consider adopting amendments to its rules governing private placements of securities. The amendments will likely eliminate (a) the prohibition on general solicitation and general advertising for private placements to accredited investors under Rule 506 and (b) the prohibition on offers to non-qualified institutional buyers in private placements under Rule 144A.

PLI has scheduled a webcast for Friday, July 12, from 12:00 pm – 1:00 pm ET, that is intended to provide a review of these amendments and a discussion of their impact on private placement practices. The webcast features a number of speakers, including David Lynn of Morrison & Foerster LLP. Topics will include:

  • Regulation D private placements under the new rules
  • How to meet the requirement for “reasonable steps to verify” that purchasers are accredited investors
  • Rule 144A distributions under the new rules
  • Effects on practices in capital markets offerings
  • Effects on distribution of private investment funds

To register, please visit: http://www.pli.edu/Content/Seminar/JOBS_Act_SECs_New_Regime_for_Private_Placements/_/N-4kZ1z12f5d?ID=182367&t=LFW3_8AEM2&utm_source=8AEM2&utm_medium=EMKTG&utm_campaign=LFW3.