Florida Broker-Dealer Registration Exemption For M&A Brokers
Following the SEC’s lead, effective July 1, 2016, Florida has passed a statutory exemption from the broker-dealer registration requirements for entities effecting securities transactions in connection with the sale of equity control in private operating businesses (“M&A Broker”). As discussed further below, the new Florida statute, together with the SEC M&A Broker exemption, may have paved the way for Florida residents to act as an M&A broker in reverse or forward merger transactions involving OTCQX-traded public companies without broker-dealer registration.
Florida has historically had stringent broker-dealer registration requirements in connection with the offer and sale of securities. Moreover, Florida does not always mirror the federal registration requirements or exemptions. For example, see my blog HERE detailing some state blue sky concerns when dealing with Florida, including the lack of an issuer exemption from the broker-dealer registration requirements for public offerings.
However, in a move helpful to merger and acquisition (M&A) transactions in the state, Florida has now passed an M&A broker-dealer exemption and concurrent securities registration exemption for M&A transactions. The Florida exemption is similar but not identical to the federal exemption. For a review of the SEC exemption for M&A brokers, see my blog HERE and the summary at the end of this blog. The SEC exemption specifically limited itself to the federal broker-dealer registration requirements. In addition, to Florida, other states have passed similar M&A broker exemptions; however, as of the writing of this blog, I have not conducted a survey on same.
Florida M&A Broker Exemption
The sale of securities in Florida is regulated by the Florida Office of Financial Regulation, Division of Securities and is generally found in Chapter 517 Florida Statutes and corresponding rules adopted under the Florida Administrative Code (F.A.C.), Chapter 517, Florida Statutes – Securities and Investor Protection Act and Chapter 69W-100 through 69W-1000, Florida Administrative Code.
Any offer or sale of securities in Florida, which offer or sale is not pre-empted by federal law, must either be registered or exempted from registration in accordance with the state securities laws. The Florida registration exemptions can be found in Florida Statutes section 517.061. All sales of securities in Florida must be made by a properly registered dealer (Chapter 517.12(1), Florida Statutes) or by someone utilizing an exemption provided by Chapter 517.12, Florida Statutes.
The new M&A offer and sale exemption has been codified by adding a new securities registration exemption to Section 517.061 and a new broker-dealer registration exemption to Section 517.12.
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
Follow me on Facebook, LinkedIn, YouTube, Google+, Pinterest and Twitter.
Download our mobile app at iTunes.
Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
« SEC Announces Enforcement Results For Fiscal Year-End 2016 SEC Issues New C&DI On Rule 701 »
SEC Announces Enforcement Results For Fiscal Year-End 2016
On October 11, 2016, the SEC announced its enforcement results for fiscal year-end September 30, 2016 (FYE 2016). In FYE 2016 the SEC filed a record 868 enforcement actions, including against companies and executives for reporting violations, misconduct by companies and gatekeepers, fraud actions and more resulting in judgments and orders totaling more than $4 billion in disgorgement and penalties.
The actions also included a record number of enforcement proceedings against investment advisors and investment companies, a trend I expect to continue in the coming year as the SEC continues to crack down on the failure to adequately disclose all fees associated with investments into and operations of funds, as well as related party transactions.
Consistent with prior speeches and messaging, SEC Chair Mary Jo White made the following quote in the release announcing the enforcement results: “By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions. Over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”
In a speech in February of this year, Chair White focused on enforcement, stating that the SEC “needs to go beyond disclosure” in carrying out its mission. That mission, as articulated by Chair White, is the protection of investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. In 2015 the SEC brought a record number of enforcement proceedings and secured an all-time high for penalty and disgorgement orders, which record has been bested in FYE 2016. The primary areas of focus included cybersecurity, market structure requirements, dark pools, micro-cap fraud, financial reporting failures, insider trading, disclosure deficiencies in municipal offerings and protection of retail investors and retiree savings.
The SEC Division of Enforcement likewise is pleased with their results. Andrew J. Ceresney, Director of the Division of Enforcement, stated, “Through their hard work and steadfast dedication to our mission, the Division’s committed staff have helped protect investors and made our markets fairer and more reliable.”
Highlights of FYE 2016 SEC Enforcement
The SEC notes that in FYE 2016 it brought several first-of-its-kind actions, including: (i) against a firm solely for failing to file Suspicious Activity Reports (SARs) (see my blogs HERE and HERE for more on SARs); (ii) against an audit firm for auditor independence failures based on personal relationships with audit clients; (iii) municipal advisors for violations of fiduciary and antifraud provisions created by Dodd-Frank; (iv) against a private equity advisor for acting as an unlicensed broker-dealer; (v) against an issuer for misstatements and omissions related to the issuance of structured notes.
In addition, in FYE 2016 the SEC won a jury trial against a municipality and one of its officers for violations of the federal securities laws. The SEC also continued its use of data and analytics to uncover market manipulation and insider trading violations. In FYE 2016, the SEC brought 78 insider trading cases.
Moreover, the SEC continues to crack down on attorneys, accountants and other gatekeepers. This is an extremely important aspect of the enforcement ecosystem, especially in the small- and micro-cap space. Attorneys, accountants, transfer agents, and broker-dealers that are active in the OTC Markets environment play an important role in improving and protecting the OTC Marketplace to the extent that they are reasonably capable in any given fact situation. In December 2015 the SEC issued an advance notice of proposed rulemaking and concept release on proposed new requirements for transfer agents. The proposal would add significant obligations on transfer agents, some of which I agreed with and others I did not. See my blogHERE on the subject. The SEC has not taken further action on this notice as of yet.
In its publication on FYE 2016 enforcement results, the SEC noted that it brought actions against gatekeepers for “failures to comply with professional standards.” A common theme in these actions is missing or ignoring clear indications of fraud or red flags. Examples of such actions include: (i) against auditors for ignoring red flags and fraud risks in conducting audits for annual reports to be filed with the SEC; (ii) violations of auditor independence rules; (iii) against a private fund administrator who missed or ignored clear indications of fraud in preparing and maintaining fund accounting records; (iv) against a consultant for improperly evaluating internal control deficiencies (this was a first-of-its-kind action as well); and (v) against EB-5 lawyers for acting as unregistered brokers.
In addition to enforcement matters I have written about such as HERE, micro-cap fraud and market manipulation continued to be a significant area of enforcement, as it always will. The SEC suspended tradingin 199 micro-cap issuers in FYE 2016. The SEC’s use of technology and data also helped uncover elaborate foreign market manipulation and trading schemes, including such as against a United Kingdom resident for intruding into online brokerage accounts of U.S. investors and making unauthorized trades.
Private offering fraud matters were also the target of multiple enforcement actions. Multiple private offering fraud actions were brought by the SEC in FYE 2016, including actions targeting certain population sectors such as seniors.
The SEC also brought action and collected record fines against market participants, including a $35 million penalty against Barclay’s and a $54 million penalty against Credit Suisse for violations in the operations of each of their alternative trading systems (ATSs). Merrill Lynch faced a $12.5 million fine for failure to have adequate risk controls in place before providing customers with access to the market, and Morgan Stanley was charged $1 million for inadequate written policies and procedures related to the protection of customer records and information.
Investment advisers and investment companies faced an unprecedented level of scrutiny in FYE 2016. In addition to many highly publicized cases related to hidden fees and undisclosed related party transactions, the SEC brought actions for fraud, such as against Aequitas Management for hiding its rapidly deteriorating financing condition after raising $350 million from investors. Thirteen investment advisory firms were charged with repeating false claims made by an investment manager firm highlighting the importance of independent due diligence and responsibilities. Investment funds also faced violations related to improper trading activity, including prearranged trades favoring certain clients.
Other areas that the SEC specifically continued to target for enforcement proceedings include Whistleblower protections (see HERE) and Foreign Corrupt Practices Act violations.
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
Follow me on Facebook, LinkedIn, YouTube, Google+, Pinterest and Twitter.
Download our mobile app at iTunes.
Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
« NASDAQ Requires Disclosure Of Third-Party Director Compensation Florida Broker-Dealer Registration Exemption For M&A Brokers »
NASDAQ Requires Disclosure Of Third-Party Director Compensation
On July 1, 2016, the SEC approved NASDAQ’s new rule requiring listed companies to publicly disclose compensation or other payments by third parties to members of or nominees to the board of directors. The new rule, which went into effect in early August, is being dubbed the “Golden Leash Disclosure Rule.”
The Golden Leash Disclosure Rule
New NASDAQ Rule 5250(b)(3) requires each listed company to publicly disclose the material terms of all agreements or other arrangements between any director or director nominee and any other person or entity relating to compensation or any other payment in connection with the person’s position as director or candidacy as director. The disclosure does not include regular compensation from the company itself for director services. The disclosure must be included in any proxy or information statement issued underRegulation 14C or 14A for a shareholder’s meeting at which directors will be elected. A company can also include the disclosure on its website.
There are a few exemptions from the disclosure requirement, such as arrangements that (i) relate to the reimbursement of expenses in connection with a person’s candidacy as a director; (ii) existed prior to the nominee’s candidacy and the candidate’s relationship with the third party is disclosed in the proxy statements (such as existing employment). I note that in reading the entire rule, I would think expense reimbursement in relation to a candidate’s campaign for election could be material where the candidate is being funded by an activist shareholder and the candidate is objected to by current management.
The Golden Leash disclosure must be made at least annually, and updated if there are material changes that would otherwise require an update of the information. A company has an obligation to conduct a reasonable inquiry to determine any information that is required to be disclosed under the new Rule. Moreover, if information is discovered that should have been disclosed, but was not done so previously, an 8-K must be filed. As long as a company satisfies its obligation to conduct due diligence and remediates any omissions with a prompt 8-K, it will be considered in compliance with the Rule.
NASDAQ also amended Rule 5615, which allows foreign companies to follow their home country practice in certain circumstances, even when such practice differs from U.S. rules. New Rule 5250(b)(3) is included in Rule 5615 such that a foreign company would not have to make the Golden Leash disclosure as long as it is abiding by its home country rule and that it discloses in its annual filings that the home country rule is different and explains the difference.
Background
The Golden Leash Disclosure Rule appears to be a response to the increase in shareholder activism over the past few years. I’ve yet to write a full blog on shareholder activism, though it is on my very long list of future topics. However, this quote from a JP Morgan article published in January 2015 sums it up: “[N]o recent development has influenced firms’ strategic and financial decision-making as profoundly as the surge in shareholder activism following the global financial crisis. From a few activist funds managing less than a total of $12 billion in 2003, the activist asset class has ballooned to more than $112 billion in assets under management for activist hedge funds with most of that growth occurring since 2009.”
NASDAQ actually submitted its first iteration of the Rule to the SEC in March 2016, amended it on May 18, 2016, then withdrew that amendment and filed Amendment 2 on June 30, 2016, which was fast-tracked and approved by the SEC. The SEC received eight comment letters on the Rule.
Whether in support of the Rule or opposed, almost all the comment letters supported the disclosure. One comment letter in favor of the Rule stated, “the ability to keep both arrangement and the terms thereof secret provides ‘raiders’ and other types of activists an unfair tactical advantage over the incumbent board members,” and that “if an insurgent candidate is elected to the board, secrecy around that board member’s outside compensation can inhibit the effective functioning of the board of directors.”
Those opposed generally opposed on the grounds that the information may already be required by other rules and, as such, was duplicative. For example, Item 401(a) of Regulation S-K requires disclosure of any “arrangement or understanding between [the director] and any other person(s)” related to the selection or nomination as a director. Similarly, Item 402(k) requires disclosure of director compensation.
SEC Discussion
As with any proposed rule by an Exchange, the SEC must make a determination that the Exchange’s rules “be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest.”
The SEC continues with an acknowledgment of the critical importance of initial and continued listing standards for exchanges such that only qualifying companies are listed. These qualitative and quantitative standards help ensure fair and orderly markets.
The SEC sees the Golden Leash Disclosure Rule as a corporate governance-related rule providing “greater transparency into the governance processes of listed issuers and enhance investor confidence in the securities markets.”
The SEC acknowledged the potential for duplicative disclosure, which I note was just the topic of a sweeping proposed rule change to eliminate duplication, among other things (see my blog HERE). However, the SEC notes that the Golden Leash Rule is a NASDAQ rule and not an SEC rule and that exchanges often have duplicative rules. The SEC supports such exchange reinforcement, stating, “[T]hese and other disclosure-related listing standards help to ensure that listed companies maintain compliance with the disclosure requirements under the federal securities laws…” Likewise, the SEC notes, “we believe that it is within the purview of a national securities exchange to impose heightened governance requirements…”
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host ofLawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
Follow me on Facebook, LinkedIn, YouTube, Google+, Pinterest and Twitter.
Download our mobile app at iTunes.
Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
« House Continues To Push For Reduced Securities Regulation SEC Announces Enforcement Results For Fiscal Year-End 2016 »
House Continues To Push For Reduced Securities Regulation
House Appropriations Bill
The House continues its busy activity of passing legislation designed to reduce securities and market regulations. In early July, the House passed H.R. 2995, an appropriations bill for the federal budget for the fiscal year beginning October 1st. No further action has been taken. The 259-page bill, which is described as “making appropriations for financing services and general government for the fiscal year ending September 30, 2017, and for other purposes” (“House Appropriation Bill”), contains numerous provisions reducing or eliminating funding for key aspects of SEC enforcement and regulatory provisions.
Earlier this year, I wrote this BLOG about three House bills that will likely never be passed into law. The 3 bills include: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing an amendment to the definition of accredited investor. None of the bills have been passed by the Senate as of yet.
The new House Appropriations Bill also contains the text of H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC. The Bill prohibits the SEC from expending any funds under the Dodd-Frank act or to finalize, issue or implement any rule related to the disclosure of political contributions, contributions to tax-exempt organizations, or dues paid to trade associations.
The Bill also requires the Director of the Office of Management and Budget to submit a report to the Committees on Appropriations for both the House and Senate detailing the costs of implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
The Financial Choice Act
The House Financial Services Committee has also drafted The Financial Choice Act, which has not yet been passed by the House. This Act is as extreme as the current presidential election and likely will never go further than its publication by the House Financial Services Committee. The Executive Summary for the Financial Choice Act lists the following seven key principles of the Act:
Economic growth must be revitalized through competitive, transparent, and innovative capital markets;
Every American, regardless of their circumstances, must have the opportunity to achieve financial independence;
Consumers must be vigorously protected from fraud and deception as well as the loss of economic liberty;
Taxpayer bailouts of financial institutions must end and no company can remain too big to fail;
Systemic risk must be managed in a market with profit and loss;
Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by the Washington powerful; and
Both Wall Street and Washington must be held accountable.
The Act focuses on dismantling Dodd-Frank. On the bank-specific side, the Act would eliminate bank prohibitions on capital distributions and limitations on mergers, consolidations, or acquisitions of assets or control to the extent these limitations relate to capital or liquidity standards or concentrations of deposits or assets.
Related to bailouts, the Act would in summary:
Repeal the authority of the Financial Stability Oversight Council to designate firms as systematically important financial institutions (i.e., too big to fail).
Repeal Title II of Dodd-Frank and replace it with new bankruptcy code provisions specifically designed to accommodate large, complex financial institutions. Title II of Dodd-Frank is the orderly liquidation authority, granting authority to the federal government to obtain receivership control over large financial institutions; and
Repeal Title VIII of Dodd-Frank, which gives the Financial Stability Oversight Council access to the Federal Reserve discount window for systematically important financial institutions (i.e., gives the federal government the money to bail out financial institutions) as well as the authority to conduct examinations and enforcement related to risk management;
Related to accountability from financial regulators, the Act would:
Make all financial regulatory agencies subject to the REINS Act related to appropriations and place all such agencies on an appropriations process subject to bipartisan control;
Require all financial regulators to conduct a detailed cost-benefit analysis for all proposed regulations (provisions analogous to this are already required, but this would be more extreme);
Reauthorize the SEC for a period of 5 years with funding, structural and enforcement reforms (i.e., dismantle the current SEC and replace it with a watered-down version);
“Institute significant due-process reforms for every American who feels that they have been the victim of a government shakedown.”
Repeal the Chevron Deference doctrine. Under this doctrine, a court must defer to an agency’s interpretation of statues and rules.
Demand greater accountability and transparency from the Federal Reserve; and
Abolish the Office of Financial Research.
Under the heading “[U]leash opportunities for small businesses, innovators, and job creators by facilitating capital formation”, the Act would:
Repeal multiple sections of Dodd-Frank, including the Volker Rule (which restricts U.S. banks from making speculative investments, including proprietary trading, venture capital and merchant bank activities);
Repeal the SEC’s authority to either prospectively or retroactively eliminate or restrict securities arbitration;
Repeal non-material specialized disclosure; and
Incorporate more than two dozen committee- or House-passed capital formation bills, including H.R. 1090 – Retail Investor Protection Act (prohibiting certain restrictions on investment advisors), H.R. 4168 – Small Business Capital Formation Enhancement Act (requiring prompt SEC action on finding of the annual SEC government business forum), H.R. 4498 – Helping Angels Lead Our Startups Act (directing the SEC to amend Regulation D expanding the allowable use of solicitation and advertising), and H.R. 5019 – Fair Access to Investment Research Act (expanding exclusion of research reports from the definition of an offer for or to sell securities under the Securities Act).
Thoughts
The House regulatory activity gives insight into the behind-the-scenes political pressure facing the SEC in recent years. We have seen the most dramatic changes in capital formation regulations and technological developments in the past 30 years, if not longer. Significant capital-formation changes include: (i) the creation of Rule 506(c), which came into effect on September 23, 2013, and allows for general solicitation and advertising in private offerings where the purchasers are limited to accredited investors; (ii) the overhaul of Regulation A, creating two tiers of offerings which came into effect on June 19, 2015, and allows for both pre-filing and post-filing marketing of an offering, called “testing the waters”; (iii) the addition of Section 5(d) of the Securities Act, which came into effect in April 2012, permitting emerging-growth companies to test the waters by engaging in pre- and post-filing communications with qualified institutional buyers or institutions that are accredited investors; and (iv) Title III crowdfunding, which came into effect May 19, 2016, and allows for the use of Internet-based marketing and sales of securities offerings.
At the same time, we have faced economic stagnation since the recession, a 7-year period of near-zero U.S. interest rates and negative interest rates in some foreign nations, nominal inflation and a near elimination of traditional bank financing for start-ups and emerging companies. If bank credit was available for small and emerging-growth companies, it would be inexpensive financing, but it is not and I do believe that Dodd-Frank and over-regulation are directly responsible for this particular problem.
Small companies and start-ups are the backbone of the American economy, and without investment in these companies, our economy will continue to be stagnant or worse: we could have another recession. These companies are relying almost exclusively on the sale of securities to investors (both private and public, debt and equity) for financing, all of which is under the supervision of the SEC.
The SEC is then balancing its ability to support the U.S. economy by facilitating capital formation for small and emerging companies while at the same time protecting investors from fraud and dealing with the pressure of extreme divergent political views. Something has to give, and I suspect that we will continue to see dramatic changes in the regulatory environment for the foreseeable future while this economic revolution plays out.
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host ofLawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
Follow me on Facebook, LinkedIn, YouTube, Google+, Pinterest and Twitter.
Download our mobile app at iTunes.
Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
« SEC Whistleblower Awards Pass $100 Million As It Continues To Crack Down On Confidentiality Provisions In Employment Agreements NASDAQ Requires Disclosure Of Third-Party Director Compensation »