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Dodd-Frank, SOX, JOBS, & Legislation

Insider Trading Crackdown on Congress- STOCK Act | H.R. 1148 S.1871

The Stop Trading on Congressional Knowledge Act (STOCK) has now passed both the U.S. House and Senate and should be signed into law by the president very soon. (Actual Text | Bill Summary & Status) H.R. 1148 or Senate Version S.1871 is the bill that seeks to impose heavier restrictions on insider trading that is done by or is connected to members of congress, federal employees, or employees of congress. Insider trading is covered by the Securities Act of 1934 and other related federal legislation and rules by the SEC and CFTC. It occurs when someone uses inside information as a basis to trade in stocks, commodities, or other types of securities. Inside information is defined as material non-public information. An example would be someone who works for a public company, gains information about something about to happen with that company that has not been disclosed to the public (e.g. significantly increased profits, new products about to be launched, etc.), and trades based upon that information. This can also be extended to include what is referred to as “tipper-tippee” insider trading where the insider tells their friend or some other outside person about this inside information for them to use to trade a make a gain. The famous example is Martha Stewart who received insider tips from brokers or other people with knowledge in order to trade and make money before the public knew about the inside information. The point is to level the playing field so that well connected people can’t gain an advantage over the average public to get in prior to news being released. STOCK seeks to extend specifically liability for insider trading to inside information obtained: “(1) knowingly from a Member or employee of Congress, (2) by reason of being a Member or employee of Congress, or (3) from other federal employees and derived from their federal employment.” It also “amends the Code of Official Conduct of the Rules of the House of Representatives to prohibit any Member, officer, or employee of the House from disclosing material nonpublic information relating to any pending or prospective legislative action relating to any publicly-traded company or to any commodity if such person has reason to believe that the information will be used to buy or sell the securities of that publicly traded company or that commodity for future delivery based on such information.” It also extends certain required...

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SEC No Action Ruling Re: Shareholder Proxy Material Exclusions

Good discussion in this link about the implementation of Dodd-Frank when it comes to the SEC ruling on attempts by public companies to limit what they have to do to allow shareholders to add nominations to proxy materials. Click Here (External...

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Kickstarter and other crowdfunding platforms to grow in the very near future

Kickstarter is one of the main examples of a crowdfunding type of company.  It solicits money to help fund new projects or companies.  So is this general advertising, solicitation, and funding by a non-broker/dealer or intermediary that is not allowed by law? Yes and no. Although their terms of use and other information on their website do not specifically state this, they are essentially relying upon the fact that the money used is in the form of a gift (or pledge as they call it) to the company.  The person pledging the money does not get an ownership interest or much else in exchange for their contribution.  Usually a company obtains funding by selling stock or getting a loan and enters into a sale of stock or sale of a promissory note.  These are securities and are subject to federal and state law regarding their offering, purchase, and sale.  Generally, a company cannot use general advertising or solicitation of the investment if they want to use the exemptions from registration available by law.  Two examples: First, Facebook files for an IPO and the world knows they are selling stock.  They have filed a registration statement, or S-1, with the SEC and this complies with laws to allow them to be able to publicly announce the sale.  Second, Most startup or small companies do not have the resources or want to try to go through the process of filing with the SEC.  They rely upon exemptions from registration to sell stock.  The law puts certain requirements that need to be met to be able to use those exemptions, one of which is that they can’t go out and issue a press release or put on their website that they are trying to raise $1 million by the sale of their stock. If Kickstarter or any other similar platform started selling an investment in the company where the investor gets something in return like a loan or stock, they could be guilty of federal securities law violations, especially if they took a percentage of the funding raised without being a licensed broker/dealer.  However, here comes H.R. 2930. There is a bill that is in the US Senate waiting for a vote that would allow a crowdfunding exemption and the use of intermediaries in connection with certain limited sales of securities, H.R. 2930, the so-called “crowdfunding exemption or bill.”  (Actual Text &...

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SEC Proposes Rule To Protect Identity Theft under Dodd-Frank

The SEC published a proposed rule promulgated under Dodd-Frank to deal with issues of identity theft when dealing with broker/dealers, investment advisors, and other investment professionals. The rule would require SEC regulated entities to implement written identity theft policies and procedures to ensure investors’ identity remains confidential.  It uses what they call a program of “red flags.” There is a 60 day comment period before the rules would go into effect from the February 28, 2012 publish date. The press release can be found here.  The proposed rule can be found from the SEC website in pdf...

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HR 2930 & 2940, Crowdfunding, Intermediaries, and Rule 506 Changes Good For Startups?

There are definitely pros and cons with both HR 2930 and 2940. Having been in the position of a cash-strapped start-up trying to raise money, I can see the huge benefit of the changes for raising cash from small investors with intermediaries (basically a “finder”) and advertising rules. However, the lack of disclosure requirements could allow for fraud on potential investors and not enough oversight. I am a little surprised I don’t see more posts regarding these from other corporate, startup, or securities lawyers. Here is a link to a good discussion on HR 2930 by the Securities Law Prof Blog. Given that it appears that both HR 2930 and 2940 may pass the US Senate and be signed by the president and the recent recommendation by the Advisory Committee on Small and Emerging Companies for the SEC to make similar changes to SEC rules for 506 Reg D private placements, it appears these changes may take effect in the next several months. It may have some negative consequences on investors, but I think it will help with small startup companies fund raising abilities. There will be some work for corporate and securities lawyers to interpret and help companies implement these changes in the near future. Stay tuned, I will try to keep track of the progress of these bills and provide updates as available on my blogs. barsnesscohen.blogspot.com and chrisbarsness.tumblr.com  Twitter:  @BarsnessLaw  | ...

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Mixed Signals on the Future of Say on Pay Litigation

Mixed Signals on the Future of Say on Pay Litigation

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