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Remaining or Going Private: Traditional and New Rationales
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.
A New Trend in Securities Fraud: Punishing People Who Do Bad Things
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.
Securities Law in Texas – Perspectives from a Regulator & a "Reformed" Regulator
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.
Codification of Texas Securities Act
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.
Private Causes of Action Under the Texas Securities Code
The Texas Legislature passed the Texas Securities Act recodification in the 2019 regular session with an effective date of January 1, 2022.1 The Legislature amended the recodified Texas Securities Act’s private cause of action provisions through SB 1280 during the 2021 regular session by deleting cross-references imposing liability for violations as to six Texas Securities Act provisions that imposed no duties on private actors and thus had no potential for violations by private actors.2 Business attorneys should have some familiarity with the recodified Texas Securities Act’s private causes of action and remedies in order to properly advise clients of potential pitfalls in securities transactions. Business attorneys should also relearn the Texas Securities Act statutory structure, which has significantly changed. The previous Texas Securities Act had had 64 sections. The recodified Texas Securities Act (“Recodified TSA”) has 248 sections - almost 400% more.
Basics of a Private Securities Offering
A private placement is a type of unregistered securities offering, typically to a relatively small number of investors. Private placements are the offer and sale of securities by an issuer, rather than a broker-dealer or other intermediary, and they are generally exempt from registration under both state and federal law. Because private placements are transactional exemptions only the issuer’s initial offer and sale of the securities are exempt from registration. Investors wishing to resell unregistered securities must find an exemption of their own. This article focuses on the issuance of securities by private companies, including private investment funds. It is important for attorneys representing clients in connection with the issuance of both equity and debt to be able to identify when a security is involved, and what exemptions are available. This is particularly true when dealing with oil and gas and real estate transactions that may not be thought of as securities transactions. Finally this article will cover the securities laws applicable to private investment funds and their sponsors.
How To Raise Capital Through Exempt and Limited Offerings
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.
How To Raise Capital Through Exempt and Limited Offerings
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.
Preparing for Securities Litigation
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.
Senate and House Committee Interim Study Charges of Interest
Interim report
Federal court strikes down Missouri investment rule targeted at 'woke politics'
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.”
Private Causes of Action under the Texas Securities Act
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.
Securities on Blockchain
A recent paper appeared in the Winter issue of the ABA Business Lawyer that addresses transactions for securities using a blockchain.
The SEC Provides an Opinion Letter Regarding Blockchain Settlement Service for Public Shares
Concerns blockchains and Clearing Agency Registration Under Section 17A(b)(1) of the Securities Exchange Act of 1934.
Proposed Rules on Incentive-Based Compensation in Financial Institutions
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.
SEC Adopts Amendments to Implement JOBS Act and FAST Act Changes for Exchange Act Registration Requirements
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.
SEC Charges “Frack Master” With Running an $80 Million Oil and Gas Fraud
SEC Offers Online Tool to Help Companies Estimate Registration Fees
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.
Really Bad Lawyering costs client $240,000 per SEC
SEC Charges Broker-Dealer Nationwide Planning and Two Affiliated Investment Advisers with Violating Whistleblower Protection Rule
Divided SEC Approves PCAOB’s Quality Control Standard
The Securities and Exchange Commission (SEC) on September 9, 2024, voted 3-2 to approve the Public Company Accounting Oversight Board’s (PCAOB) new quality control (QC) standard that imposes a combination of principles-based and prescriptive requirements to make sure that audit firms have a robust QC system to better protect investors.
SEC Abandons ESG Enforcement Group Amid Broader Backlash
Per Bloomberg the SEC’s ESG Enforcement Group is disbanded and the dedicated website is down.
Divided SEC Approves PCAOB’s Quality Control Standard
The Securities and Exchange Commission (SEC) on September 9, 2024, voted 3-2 to approve the Public Company Accounting Oversight Board’s (PCAOB) new quality control (QC) standard that imposes a combination of principles-based and prescriptive requirements to make sure that audit firms have a robust QC system to better protect investors.
Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund Liquidity Risk Management Programs
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.