MAJOR TOPICS:
- Rule 506 of Reg. D, JOBS Act
- New regulatory regime for private offerings of unregistered securities
- Liability issues
- Importance of using broker-dealers as placement agents
- Current state of Crowdfunding rules
SUMMARY DESCRIPTION:
On July 10, 2013, the SEC adopted long-awaited amendments to Rule 506 of Regulation D under the JOBS Act of 2012, lifting the 80-year ban on general solicitations of unregistered securities offerings. Previously prohibited from publicly soliciting investors in private (unregistered) securities offerings, companies were relegated to soliciting investors with whom they had a “preexisting relationship.” Under the new rules, companies may now publicly solicit “accredited” investors in offerings exempt from SEC registration under Rule 506 of Regulation D. Many believe this rule change to be of greater significance than even the JOBS Act’s Crowdfunding exemption.
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The New Paradigm for Raising Capital the Sec's New Jobs Act Rules
1. Presenters:
Alexander B. Kasdan, Managing Director
Mark T. Hiraide, Partner
The New Paradigm for Raising Capital: The SEC’s New JOBS Act Rules
August 22, 2013
2. 1
Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has more
than twenty years of investment banking, real estate, corporate law and corporate
strategy experience. Alex has executed over 100 domestic and cross-border
transactions totaling more than $10 billion in overall volume in a variety of industries.
Prior to joining DelMorgan, Alex founded Convergence Capital Partners, LLC, a
boutique investment banking advisory and real estate investment firm and was an
investment banker at Barrington Associates, Peter J. Solomon Company, Credit Suisse
First Boston and Merrill Lynch.
Alex practiced law with O’Melveny & Myers LLP (formerly O’Sullivan Graev &
Karabell LLP) and Paul, Hastings, Janofsky & Walker LLP (formerly Battle Fowler
LLP), where he specialized in mergers and acquisitions, private equity and corporate
finance transactions. In addition, Alex served as Corporate Counsel in charge of
business development at Schlumberger Ltd., a global oilfield and information services
company.
Alex graduated magna cum laude from Middlebury College with a B.A. degree in
Economics and Italian and was elected to Phi Beta Kappa during his junior year. In
addition, he holds a J.D. degree from Columbia University Law School and has studied
at the University of Florence in Italy. Alex is admitted to the Bar in the State of New
York.
Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm
established in 2003 by Mr. James L. Gunderson, former Secretary and General Counsel
of Schlumberger Limited, to assist boards, management and owners with corporate
governance, compliance, structuring and strategic transactions.
100 Wilshire Blvd.
Suite 750
Santa Monica, CA 90401
(310) 980-1718
www.delmorganco.com
ak@delmorganco.com
3. 2
Mark T. Hiraide is a Partner at Petillon Hiraide & Loomis LLP. He assists
entrepreneurs raising capital in private and public securities markets. He defends
directors, officers and auditors in civil litigation and in regulatory investigations before
the SEC, FINRA and PCAOB. He prosecutes securities cases on behalf of investors
and counsels companies listed on the NASDAQ, AMEX and OTCBB stock markets,
privately held businesses and individual officers and directors in corporate finance and
mergers and acquisition transactions and in litigation relating to liabilities under federal
and state securities laws.
Most recently, Mark was invited by the Securities Subcommittee of the U.S. Senate
Banking Committee to testify about Crowdfunding, Regulation A, Regulation D, SOX
404, IPOs and other securities law issues relating to the JOBS Act.
Prior to entering private practice, Mark was an attorney for the U.S. Securities and
Exchange Commission. He was as an Attorney-Advisor with the SEC in the Division
of Corporation Finance in Washington, D.C. and a Chief of one of the Enforcement
Branches in the Los Angeles Regional Office. While at the Commission, he was also
appointed as a Special Assistant United States Attorney to prosecute a major criminal
securities fraud case.
Mark received his B.A. (with honors) in 1981 from the University of California at
Berkeley and his law degree in 1984 from the University of Southern California. In
law school, he received a Merit Scholarship and served as a judicial extern to Justice
Cruz Reynoso of the California Supreme Court and to the Honorable Robert M.
Takasugi of the United States District Court, Central District of California.
21515 Hawthorne Blvd.
Suite 1260
Torrance, California 90503
(310) 543-0500
www.phlcorplaw.com
mhiraide@phlcorplaw.com
4. 3
ROLE OF AN INVESTMENT BANKER
Articulate the investment proposition
Provide third-party validation of investment thesis
Advise company on adequate capitalization: short- and long-term
Prepare marketing materials and financial model
Run an organized process / investor discussions
Interact with management and board of directors /advisors
Organize due diligence and management presentations
Work with company to confirm accredited investor status
Evaluate investment alternatives
Negotiate best possible transaction
Close the transaction
5. Mark T. Hiraide Petillon Hiraide & Loomis LLP
Alex Kasdan, DelMorgan & Co.
10. Title I: Reopening American Capital
Markets to Emerging Growth Companies
Title II: Access to Capital for Job Creators
Title III: Capital Raising Online While
Deterring Fraud and Unethical Non-
Disclosure Act of 2012
Title IV: Small Company Formation
Title V: Private Company Flexibility and
Growth
Title VI: Capital Expansion
Title VII: Outreach on Changes to the Law
Mark T. Hiraide Petillon Hiraide & Loomis LLP
11. IPO OnRamp
Reg D Rule 506: General Solicitation
Regulation A
Crowdfunding
Section 12(g) (“Facebook Issue”)
Mark T. Hiraide Petillon Hiraide & Loomis LLP
12. “Emerging Growth Company”
Two Years Audited Financial Statements
Draft IPO Submissions
Testing-the-Waters
Analyst Reports
Mark T. Hiraide Petillon Hiraide & Loomis LLP
13. SOX 404(b)
Executive Compensation Disclosure
Say-On-Pay Disclosure
New Accounting Standards
Auditor Rotation
Mark T. Hiraide Petillon Hiraide & Loomis LLP
17. • Issuer:
• $1M every 12
mo.s
• Investor:
• <$100K: 5%/$2K
• >$100K: 10% up
to $100K
• BD or “Funding
Portal”
Mark T. Hiraide Petillon Hiraide & Loomis LLP
18. Mark T. Hiraide Petillon Hiraide & Loomis LLP
Other Issuer
Requirements
• Disclosure Document
• Target Offering
and Deadlines
• No Advertising
• No Compensation
for Promoting
Offering
19. MAY NOT:
(A) offer investment advice or recommendations;
(B) solicit purchases, sales, or offers to buy the securities
offered or displayed on its website or portal;
(C) compensate employees, agents, or other persons for
such solicitation or based on the sale of securities
displayed or referenced on its website or portal;
(D) hold, manage, possess, or otherwise handle investor
funds or securities; or
(E) engage in such other activities as the Commission, by
rule, determines appropriate.
Mark T. Hiraide Petillon Hiraide & Loomis LLP
20. Mark T. Hiraide Petillon Hiraide & Loomis LLP
Section 12(a)(2) Liability
21. Mark T. Hiraide Petillon Hiraide & Loomis LLP
Title II
Reg D Rule 506 and Rule 144 Reform
23. Non-Financial Information
› Accredited Investors
› Non-accredited Investors
Financial Statement Information
› < $2M: Audited balance sheet w/in 120 days
› >$2M and <$7.5M: S-1 for smaller reporting
co.s
› >$7M: registration statement
Mark T. Hiraide Petillon Hiraide & Loomis LLP
24. “Offers and sales [of securities] exempt
under [Rule 506 of Regulation D] shall not
be deemed public offerings under the
Federal securities laws as a result of general
advertising or general solicitation . . .
provided that all purchasers of the securities
are accredited investors.”
and provided "the issuer [of the securities]
take[s] reasonable steps to verify that
purchasers of the securities are accredited
investors, using such methods as
determined by the Commission."
Mark T. Hiraide Petillon Hiraide & Loomis LLP
25. SEC’s Non-Exclusive List
› Income: Tax Returns
› Net Worth: Statements
dated within the prior three months
written representation that all liabilities
necessary to make a determination of net
worth have been disclosed.
For liabilities a credit report from at least one of
the nationwide consumer reporting agencies.
Mark T. Hiraide Petillon Hiraide & Loomis LLP
26. Obtaining a written confirmation from a
registered broker-dealer, an SEC-
registered investment adviser, a licensed
attorney, or a certified public
accountant that such person has taken
reasonable steps to verify that the
purchaser is an accredited investor
within the prior three months will satisfy
the verification requirement.
Mark T. Hiraide Petillon Hiraide & Loomis LLP
27. Principles-Based Methods of Verifying
Accredited Status
Nature of Purchaser and Type of Investor
Amount and Type of Information About the
Purchaser
Nature of Offering, such as manner of
solicitation
Mark T. Hiraide Petillon Hiraide & Loomis LLP