Securities Law

SEC Charges Broker-Dealer Nationwide Planning and Two Affiliated Investment Advisers with Violating Whistleblower Protection Rule

The Securities and Exchange Commission (“Commission”) is adopting amendments to reporting requirements on Forms N-PORT and N-CEN that apply to certain registered investment companies, including registered open-end funds, registered closed-end funds, and unit investment trusts. The amendments will require more frequent reporting of monthly portfolio holdings and related information to the Commission and the public, amend certain reporting requirements relating to entity identifiers, and require open-end funds to report information about service providers used to comply with liquidity risk management program requirements. In addition, the Commission is providing guidance related to open-end fund liquidity risk management program requirements.

Business attorneys should be familiar with the Texas Securities Act’s private causes of action and remedies, in order to properly advise clients of potential pitfalls in securities transactions. Compliance with the Texas Securities Act (the “TSA”) cannot be contractuallywaived3 and thus will be a common focus of potential investment litigation claims. This article explains the tests and analysis required to determine whether a security is present, before detailing the Texas Security Act’s private causes of action and the ways in which they differ from the Securities Act of 1933 and Securities Exchange Act of 1934.

A federal judge has struck down Missouri investment regulations that Republican Secretary of State Jay Ashcroft had touted as way to expose financial institutions that “put woke politics ahead of investment returns.”

This paper will address basic issues for securities law compliance for an exempt offering of securities in the State of Texas. Set out below are the basic building blocks of federal and state securities requirements that with the principal purpose of guiding compliance with securities laws concerning the offering and sale of equity in a client’s business. Compliance may consider issues such as the client in choosing the form of business entity, identifying and quantifying the risk of the transaction, as well as assisting the client in identifying the nature of the investors most likely to consider an investment in the proposed transaction. This paper, however, will focus on an overview of how to comply, with some explanation about the history and thought processes involved, so as to help you off to a running start. I will focus on the most common federal exemption, since that is the most simple and common form of compliance (very easy to find templates and “go-bys”), and also makes state compliance the most straight forward. Other possibilities for compliance are listed, both for education and also to make you aware of other possible compliance regimes if the most common is not available or a good fit. This paper will not, however, be a compendium. For example issues such as what constitutes a “security,” or liabilities for issuers and their control persons, or principles of rescission (to fix a broken exemption) are all outside the scope of this paper.

Although early-stage companies have numerous potential paths, many founders simply start with an innovative idea, apprehension about the immediate next steps, and big dreams about building a successful business. Only a select few will cash in on a massive exit or other sale transaction. While some companies initially can survive using the founder’s own money, many companies – especially high-growth potential companies (which are the focus of this article) – need significant investment capital to turn ideas and dreams into a real business. Success or failure in the early-stage financing process often is a keystone on which a high-growth potential company’s future depends. There are many variables to early-stage financing, and missteps during the process can haunt a company throughout its lifespan. When an early-stage company conducts this process in accordance with established norms, we have found that, among other things, financing tends to close quicker, valuations remain intact, and founders have better options for subsequent fundraising rounds.

It has been almost five years since the Texas Supreme Court declined to recognize a common law cause of action for shareholder oppression. Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014). Although it restricted shareholder common law rights, Ritchie did not put an end to shareholder litigation. As highlighted further below, recent cases show that shareholders continue to seek available judicial remedies, including through derivative actions and the various statutory and common law causes of action and remedies outlined by the Court in Ritchie. These cases provide insight into the types of claims practitioners should be cognizant of when advising their clients and drafting organizational documents. Through its repeated emphasis on the use of shareholder agreements, the Court in Ritchie for many situations left it to shareholders and corporations to protect their respective rights and interests and govern themselves by contract. Id. at 871. Thus, five years after Ritchie, the importance of well-drafted shareholder agreements cannot be understated. Accordingly, this article also discusses some of the potential provisions that practitioners should strongly consider including in their organizational documents, including shareholder agreements.

Capital formation efforts by businesses small and large continue to contribute to the vitality of the Texas economy. The Texas Securities Act and the regulations, thereunder, provide avenues to raise capital while also establishing standards and processes intended to protect investors. As such, business owners and their lawyers commonly face questions like “Do I have to file anything if I want to find investors?,” “Who can I raise money from?,” “Can Jane help me raise money if I don’t pay her?,” and“What is the penalty for doing this wrong?” The easy answer – and the least satisfying one for all involved – “It depends.” This article outlines for counsel certain key initial considerations raised regularly by businesses seeking to raise capital or other activity involving securities.

Concerns blockchains and Clearing Agency Registration Under Section 17A(b)(1) of the Securities Exchange Act of 1934.

Section 323.007 of the Government Code requires the Texas Legislative Council (Legislative Council or Council) to carry out a complete, nonsubstantive revision of the Texas statutes. The process involves reclassifying and rearranging the statutes in a more logical order; employing a numbering system and format that will accommodate future expansion of the law; eliminating repealed, invalid, duplicative, and other ineffective provisions; and improving the draftsmanship of the law if practicable—all toward promoting the stated purpose of making the statutes “more accessible, understandable, and usable” without altering the sense, meaning, or effect of the law. The continuing statutory revision program was created by a 1963 statute. Under the Texas statutory revision program, all Texas statutes will eventually be contained in one of 27 topical codes. The Texas Securities Act, previously contained in Articles 581-1 through 581-45 of the Texas Civil Statutes, was one of the last of the remaining civil statutes to go though the codification process.

Interim report

This article seeks to articulate a distinct view of federal securities law as it is increasingly used in non-traditional enforcement actions commenced to punish corporate bad behavior. This paper argues that these non-traditional enforcement mechanisms should be viewed with skepticism. This skepticism should not be misinterpreted as cynicism, as the author believes that these non-traditional enforcement actions are beneficial vehicles to accomplish the admirable governmental objective of “punishing people who do bad things.” However, the author recognizes that such use of securities law does not fall into a category of clearly defined criminal law and carries a significant risk of abuse. The author also recognizes the “admirable governmental objective” may be thwarted when it comes to private companies. Finally, the author is uneasy with the societal values conveyed when the government sanctions corporate misbehavior in the name of protecting shareholders from deception.

The going private transaction has been popular in the past and will likely continue in popularity, given the number of startup “exits.” In the alternative, companies could continue to remain private, as venture capital funding and mega-rounds give companies a way to operate privately and their founders to retain control. Traditional rationales were centered around public speculation and filing or disclosure requirements. I suggest that new rationales include control by founder/CEOs, although it is hard to be sure. In the future, there could be new trends, less founder-centric companies, and more rationales for remaining, or going, private.

The Texas Securities Act recodification bill has been filed in the 86th session of the Texas Legilature.

The Securities and Exchange Commission today announced the release of an online tool to help companies calculate registration fees for certain form submissions to EDGAR, the SEC’s electronic database of financial reports and other filings. The new tool is intended to improve the accuracy of fee calculations and minimize the need for corrections.

Most of this was required by the specific terms of the JOBS Act. The SEC did not change the definition of “held of record” other than carve out holders who received their securities through equity compensation plans under Section 701. Consequently, “held of record” still refers to record holders plus DTC account holders and not beneficial owners held through their broker-dealers or custodians. The details are below.

The SEC and several other financial regulators today jointly issued rules regarding incentive-based compensation practices at financial institutions, required by Section 956 of the Dodd-Frank Act.

A recent paper appeared in the Winter issue of the ABA Business Lawyer that addresses transactions for securities using a blockchain.

Protecting investors and ensuring efficient capital markets is one of the main purposes of the federal securities laws. Disclosure is one of the primary means through which these two objectives are achieved. This contrasts against the merit-based approach to regulating the capital markets, in which regulators evaluate the suitability of securities offered to the public. While a disclosure-based regime provides market participants with more autonomy, it also relies on their aptitude for discerning worthwhile and legitimate investment opportunities from mere lemons. More importantly, the success of a disclosure- based regime depends on the extent and quality of the disclosure. The securities laws mandate disclosure in a variety of circumstances. For instance, companies whose securities are listed on a national securities exchange must periodically disclose quarterly and annual information with the Securities and Exchange Commission (the “SEC”).1 This provides investors and analysts information upon which to make or recommend investment decisions. Also, when a company reaches a certain size in terms of its total assets and has a class of equity securities held by a certain number of persons, it too must disclose periodic information even if its securities are not listed on an exchange.

Prior to adoption of the National Securities Markets Improvement Act of 1996 (“NSMIA”),1 many practitioners routinely wrestled with state securities laws (commonly referred to as “blue sky” laws) in conjunction with a proposed offering of securities regardless of whether such offering was registered under the federal Securities Act of 1933 (the “Securities Act”). Since 1996, however, the blue sky analysis has been simplified considerably because of NSMIA’s preemption of state regulation as it relates to certain “covered” securities. As a result, many securities practitioners have little experience when it comes to registering securities pursuant to the Texas Securities Act. This article provides an analysis of the state registration process in Texas and issues frequently encountered.

The purpose of this paper is to help business lawyers who are not securities law specialists to identify when they have securities law issues in their practices. It is divided into three sections: 1) When is your client issuing securities? (And, when could it, thereby, be engaged in a Ponzi scheme?) 2) When can someone involved in one of your clients’ transaction take a success fee? 3) Under what circumstances can a group of people come together, pool their money and invest as a group?

Securities litigation is, in many respects, different from other types of business litigation. In an effort to bring order and structure to securities litigation, Congress enacted legislation specifically to address securities class actions. The Private Securities Litigation Reform Act (PSLRA) and Securities Litigation Uniform Standards Act (SLUSA) are two major statutes affecting securities class actions. The PSLRA sets out procedures uniquely applicable to securities class actions. In enacting the PSLRA, Congress acknowledged that private securities litigation provides defrauded investors with an important tool to recover losses. Congress nevertheless wanted to curb frivolous claims, vexatious discovery, and lawyer-driven litigation. H.R. Conf. Rep. No. 104-369, pp. 31 -32 (1995). Defending securities litigation is expensive, and Congress wanted to ensure that plaintiffs could not use the threat of protracted litigation as a means of extracting outsize settlements. To achieve this goal, the PSLRA sets exacting standards for alleging fraud. Discovery is restricted until the court has made a preliminary ruling on the merits of the complaint. The PSLRA provides a transparent process for selecting class representatives, mandates sanctions for frivolous suits, and specifies the process for settling cases. Business lawyers, especially in-house lawyers for publicly-traded companies, should take note of these special requirements. This paper is intended to help lawyers who do not regularly handle securities class actions to understand some of the unique aspects of this litigation and to prepare should they or their clients become involved.