Federal Securities Law Source

Diverse companies receive SEC approval to raise funds with Regulation A+

The SEC has approved 12 Regulation A+ offerings (and about 40 initial Form 1-A filings have been made) since the new Regulation A+ rules became effective in June. The companies now raising money under Regulation A+ include a dental device manufacturer, technology companies, an automaker, a cannabis company and a bank. Regulation A+ allows private companies to raise up to $50 million by selling debt or equity to the public without having to meet all of the requirements of a traditional initial public offering.

Many of the companies using Regulation A+ are true startups, but some are existing businesses with customer revenue and operations. Dental device manufacturer Sun Dental Holdings is notable because it is using a registered broker-dealer placement agent to conduct its offering. Many of the approved offerings seek to publicly sell securities that likely will not result in loss of control for the current owners or require mandatory distributions or dividends, despite potentially raising millions.

Below is a summary of the SEC-approved Regulations A+ offerings.  Continue Reading

Corruption and conspiracy charges hit sports world: DOJ indicts additional FIFA officials in corruption conspiracy

While the latest happenings in the governing world of soccer are not a typical blog topic for us, the legal issues and impacts are worth considering in a broader context. Soccer fan or not, certainly interesting times.

Late Thursday Attorney General Loretta Lynch announced that 16 additional defendants have been indicted in the on-going probe of FIFA, soccer’s world governing body. The superseding indictment names several high-ranking FIFA officials and charges corruption involving two generations of soccer officials in South and Central America over a 24 year period. The corruption scheme involves more than $200 million in bribes to win media and marketing rights for major tournaments. Continue Reading

Real estate developers use Regulation A+ to raise capital

Regulation A+ is a potentially attractive way for real estate developers to raise up to $50 million for specific projects by selling debt or equity to the public without having to meet all of the requirements of a traditional initial public offering.

Several investment platforms for real estate development allow developers to market investment offerings to investors. At least two platforms, Fundrise and Groundfloor, have launched Regulation A+ offerings to raise capital, and the SEC has approved two of the Groundfloor offerings (a third was filed November 19). In fact, the second Groundfloor offering was approved in just 22 days from the date the offering statement was filed. Groundfloor claims to be the first real estate lending marketplace open to non-accredited investors. Fundrise claims to be the first online real estate investment available to anyone in the United States regardless of net worth. Below is a description of Regulation A+ and summaries of the types of real estate development offerings using Regulation A+ to raise capital.

 Regulation A+

Amended Regulation A, effective June 19, 2015 (Regulation A+) allows issuers to make public offerings up to $50 million in a 12-month period using general solicitation of, and advertising to, accredited and non-accredited investors. The issuer must file an offering statement and the offering circular with the SEC, which the SEC must approve (a “qualification”) before any sales can be made. Issuers are permitted to “test the waters” with potential investors to see if they are interested before filing with the SEC.

Securities sold under Regulation A+ are not restricted securities and can be freely sold by non-affiliates. Offerings over $20 million in a 12-month period (“Tier 2”) are exempt from state registration and qualification requirements. Offerings below $20 million in a 12-month period (“Tier 1”) must comply with state blue sky registration and qualification requirements unless the issuer chooses to comply with the Tier 2 requirements. All Regulation A+ offerings must disclose two years of financial statements, but the Tier 2 financial statements must be audited.

A non-accredited investor in a Tier 2 offering cannot invest more than 10% of the greater of his or her annual income or net worth. There is no investment limitation in Tier 1 offerings.

Tier 2 issuers must file current, semiannual, and annual reports that are less burdensome than (but analogous to) Exchange Act reports for public companies. But there is no requirement to provide the costly auditor’s attestation of the effectiveness of internal control over financial reporting or to comply with the costly disclosure obligations of the Exchange Act and the Sarbanes-Oxley Act.

Tier 1 issuers must file an exit report after the offering is terminated or completed. Tier 2 issuers can stop Tier 2 reporting after completing reporting for the fiscal year in which the offering was qualified if the issuer has fewer than 300 record holders and the offering is complete.

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DOJ explains rule changes in light of Yates memo

The U.S. Department of Justice (DOJ) detailed new rules that would focus investigations of corporations on responsible individuals and warned that companies cannot abuse the attorney-client privilege to hide key facts in criminal investigations.

On Monday, Deputy Attorney General Sally Yates, who issued the so-called Yates Memoranda in September, detailed DOJ policy on how the department will pursue criminal cases. Yates’ comments, at the ABA’s Money Laundering Enforcement Conference, specified changes to the United States Attorney’s Manual which establish objectives for criminal and civil investigations of corporations.

In prepared remarks, Yates provided a new mission statement for DOJ investigations: not to recover the largest amount of money from the greatest number of corporations but to “seek accountability from those who break our laws and victimize our citizens.” The changes make clear the practical impact of the shift to prosecuting individuals, not just corporations. Yates also cited a number of steps that prosecutors are expected to take to maximize the opportunity to pursue individual wrongdoers. Continue Reading

Commodities trader found guilty in first “spoofing” prosecution

A Chicago jury took one hour to find a trader guilty of “spoofing” some of the world’s largest commodities futures markets by deceptive electronic trading. On Tuesday, Michael Coscia was found guilty of 12 counts of fraud and “spoofing” by attempting to flood the gold, corn, soybean and crude oil futures markets with small orders, which he intended to cancel prior to execution. This case marked the first test of anti-spoofing legislation which was enacted in the 2010 Dodd-Frank Act.

Spoofing occurs when traders rapidly place orders with the intent to cancel them before the trades can be executed – all with the intent to deceive other investors to believe that there is a spike in demand for the commodity. This tactic has become increasingly prevalent with the emergence of electronic trading which has taken the place of face-to-face trading in commodity “pits.” Federal authorities, and market experts, believe that this type of activity could not have occurred in face-to-face trading, but “spoofers,” like Coscia, can now use the anonymity of electronic trading to manipulate demand.  Continue Reading

Supreme Court refuses to review insider trading case

The U.S. Supreme Court on Monday refused to hear the government’s appeal of an adverse court of appeals decision in an insider trading case which could make it harder to prosecute insider trading.

The decision threw out the 2012 convictions of hedge fund managers Todd Newman and Anthony Chiasson relating to tips about Dell and NVIDIA stock. The decision is seen as a blow to the government’s crackdown on insider trading in the three trillion dollar hedge fund industry. The decision could also jeopardize a number of other insider trading convictions secured by the U.S. Attorney’s Office for the Southern District of New York. Continue Reading

New DOJ policies target corporate executives over companies

The U.S. Department of Justice (DOJ) issued new policies Sept. 9. One requires that companies disclose all facts relating to individual misconduct discovered during internal investigations or be considered uncooperative. This places pressure on corporations to turn over evidence against their own executives. The policy comes after ongoing criticism of the DOJ’s failure to prosecute individuals in the wake of the 2008 financial crisis.

The memorandum, issued by Deputy Attorney General Sally Q. Yates, marked the first major policy announcement of Attorney General Loretta Lynch since she took office in April. The Yates memorandum enumerates six key steps to strengthen prosecutions against individual defendants: Continue Reading

U.S. Court of Appeals reaffirms April 2014 decision on the conflict minerals rules

We reported previously in April 2014 on the ruling by the United States Court of Appeals for the District of Columbia Circuit striking down the part of the SEC’s conflict minerals rules that requires a registrant to describe its products as not “DRC conflict free” and upholding the remainder of the conflict minerals rules. Upon a rehearing of the case by the D.C. Circuit, the court on Aug. 18, 2015 reaffirmed its previous decision by a 2-1 vote.

In its April 14, 2014 decision, the D.C. Circuit struck down the requirement in the conflict minerals rules that an issuer describe its products as not “DRC conflict free” because it violates the First Amendment by compelling speech by the issuer. Continue Reading

Student internships basis for FCPA violation

The Securities and Exchange Commission (SEC) announced Tuesday that Bank of New York Mellon (BNY Mellon) had agreed to pay $14.8 million dollars to settle Foreign Corrupt Practices Act (FCPA) violations. The agreement arose out of BNY Mellon providing internships to relatives of officials linked to a Middle Eastern Sovereign Wealth Fund.

The settlement, in which BNY Mellon is not required to admit or deny wrongdoing, was one of the first actions brought by the SEC against a financial institution under the FCPA. It is also the first anti-bribery action in which student internships were considered a thing of value for FCPA prosecution.

During 2010-2011, BNY Mellon provided bank asset and wealth management services to a Middle Eastern Sovereign Wealth Fund, a government entity responsible for the management and administration of assets of an unnamed Middle Eastern country. These assets were entrusted to BNY Mellon by the country’s Minister of Finance. At that time, BNY Mellon held assets for the Wealth Fund totaling more than $55 billion. Continue Reading