SEC Proposes Amendments to Modernize Disclosures of Business, Legal Proceedings and Risk Factors

Guest post by Ropes & Gray LLP

On August 8, 2019, as part of its Disclosure Effectiveness effort, the SEC proposed amendments to three discrete Regulation S-K items – business description, legal proceedings and risk factors. The proposed amendments would update the rules to improve disclosures for investors and simplify the compliance efforts of public companies.

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An Important Milestone – First Supervised Security Token Offering

Guest post by Andrey Yanai of Barnea Jaffa Lande & Co.

After a long wait, the US Securities and Exchange Commission (SEC) has permitted a startup company to raise funds from the general public through a supervised security token offering (STO) under Reg A+ regulations. Effectively, this is the first time a public STO was granted regulatory approval in the United States. In light of the great importance attached around the world to the US capital market generally, and the position of the SEC specifically, this is a most significant development.

The Reg A+ regulations allow small- and medium-size companies that are unable to meet the heavy financial burden of an initial public offering (IPO) to raise up to $50 million in a crowdfunding track, under supervision.

Several days ago, the SEC permitted the company Blockstack Token LLC to perform the fundraising. Several days thereafter, the approval of a different company, YouNow Inc, was also reported. The founders of Blockstack said that the cost of the process reached $2 million and that the expected total fundraising amount is $28 million. This is an unusual and non-economical fundraising cost, though it is expected subsequent STO fundraisings will be much more cost-effective.  

This joins a list of other developments in the evolution of blockchain technology as it attempts to adjust to the strict demands of securities law. Among these developments, the Framework for “Investment Contract” Analysis of Digital Assets published by the SEC in April 2019 is worth noting. There, the implementation of the Howey test for digital assets was set forth. In it, the SEC analyzes when a digital asset constitutes an “investment contract,” i.e. a security subject to all the regulatory requirements. While it is true that theoretically the SEC left open the possibility that a certain digital asset would be classified as a “utility” and would not constitute a security, in effect, it seems that almost any offer of tokens meets the Howey test.

Additionally, the desired SEC approval for these STOs comes after a line of aggressive enforcement actions against companies that raised funds through an ICO, culminating in a suit filed by the SEC in June 2019 against the messaging app Kik. According to the SEC, this was a pubic fundraising in violation of federal securities laws.

In conclusion, it appears that while the SEC takes a harsh stance against companies it believes operate in violation of the rules, it is willing to give its official stamp of approval to companies prepared to toe the line dictated by the regulations. 


Andrey Yanai 

Andrey, a lawyer in the firm’s Capital Market Department, specializes in advising private and public companies, with an emphasis on dual companies.

Barnea

Barnea, Jaffa, Lande & Co. is a leading commercial law firm in Israel. We have earned an esteemed reputation for our extensive legal expertise in international activities. More …

SEC Proposes Improvements to Acquired Business Financial Statement Requirements

Guest post by attorneys at Shearman & Sterling LLP

On May 3, 2019, the SEC proposed for public comment amendments to its rules related to the financial statements required to be disclosed by SEC reporting companies or in IPOs in connection with an acquisition or disposal of a business. These proposed rule changes are intended to improve the information that investors receive regarding the acquisition and disposition of businesses, to facilitate more timely access to capital and to reduce complexity and compliance costs.

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NASDAQ And NYSE American Shareholder Approval Requirements– Change Of Control

Guest post by Laura Anthony, Esq., Anthony L.G., PLLC

Nasdaq and the NYSE American both have rules requiring listed companies to receive shareholder approval prior to issuing securities in an amount of 20% or more of their outstanding common stock or voting power or prior to completing transactions which will result in a change of control of the company.  Nasdaq Rule 5635 sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings (see HERE related to Rule 5635(d)).  NYSE American Company Guide Sections 711, 712 and 713 have substantially similar provisions.

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OCIE 2019 Examination Priorities

Guest post by Pillsbury’s Investment Fund Law Team

In a press release issued by the Securities and Exchange Commission on December 20, 2018, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced its 2019 Examination Priorities.

This year’s examination priorities, although not exhaustive, are divided into 6 categories:

  1. Compliance and risk at registrants responsible for critical market infrastructure;
  2. Matters of importance to retail investors, including seniors and those saving for retirement;
  3. FINRA and MSRB;
  4. Digital assets;
  5. Cybersecurity; and
  6. Anti-money laundering programs.

Read the OCIE 2019 Examination Priorities in full HERE.


Pillsbury Winthrop Shaw Pittman LLP

Pillsbury is an international law firm with a particular focus on the technology & media, energy, financial services, real estate & construction, and travel & hospitality sectors. Recognized by legal research firm BTI Consulting as one of the top 20 firms for client service, Pillsbury and its lawyers are highly regarded for their forward-thinking approach, their enthusiasm for collaborating across disciplines and their unsurpassed commercial awareness. That’s how we have achieved the 12th-highest percentage of Chambers-ranked lawyers among all AmLaw 100 firms.

SEC Divisions’ Issue Public Statement on Digital Assets and ICOs, Echoing Recent Enforcement Actions

Guest post by  – Cleary Gottlieb Steen & Hamilton LLP

On November 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) Division of Corporation Finance (“Corp. Fin.”), Division of Investment Management, and Division of Trading and Markets issued a joint public statement on “Digital Asset Securities Issuance and Trading.”  The public statement is the latest in the Divisions’—and the Commission’s—steady efforts to publicly outline and develop its analysis on the application of the federal securities laws to initial coin offerings (“ICOs”) and certain digital tokens.  These efforts have combined a series of enforcement proceedings with public statements by Chairman Jay Clayton and staff, including a more detailed statement of the SEC’s analytical approach in Corp. Fin. Director William Hinman’s speech on digital assets in June 2018.

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