Emerging Markets Law

Showing 88 posts from 2013.

Taylor English Duma / 2013 Book of Lists

The Atlanta Business Chronicle 2013 Book of Lists has Taylor English Duma as the fastest-growing law firm and the 11th largest over-all.

Dishing the Requirement for Audited Financials in Crowdfund Offerings

Posted In Crowdfunding

One of the draft rules proposed by the SEC in its rules for crowdfunding under the JOBS Act (soon to be called Section 4(a)(6) of the 1933 Act) is the requirement that issuer provide to crowdfund investors a set of audited financial statements and balance sheets.

It is unlikely that Congress intended for crowdfund issuers to provide audited financial statements when they pass the JOBS Act in 2012.  The chef purpose of the JOBS Act was to accelerate the formation of capital for small businesses.  Most small businesses do not have audited financial statements.  Generally speaking, unless a business exceeds a certain size threshold or has a large number of investors there is simply no need for a small business to have its financials audited.  A proper independent audit is expensive, with fees ranging from the low tens of thousands for very small companies with simple businesses to more than one hundred thousand dollars for large or complex companies.  That level of expensive is far beyond what the drafters of the JOBS Act had in mind when they adopted the level.

Nevertheless, the SEC is proposing that audited financials be required for crowdfund issuers.  It is fair to ask, however, how this requirement compares to the requires that would apply to an issuer issuing securities under Regulation D to non-accredited investors.

Generally speaking, in a regulation D offering to non-accredited investors, the issuer is also required to provided audited financial statements.  In its guidance, however, the Division of Corporation Finance has suggested that audited financial statements would not be required for a newly-formed company or a company where the audited financial statements would not be material to an investment decision in the issuer.  In its FAQs the Division of Corporation Finance wrote:

Question 256.13

Question: Under Rule 502(b)(2)(i)(B), for a non-reporting issuer that has been formed with minimal capitalization immediately before a Regulation D offering, must the Regulation D disclosure document contain an audited balance sheet for the issuer?

Answer: In analyzing this or any other disclosure question under Regulation D, the issuer starts with the general rule that it is obligated to furnish the specified information “to the extent material to an understanding of the issuer, its business, and the securities being offered.” Thus, in this particular case, if an audited balance sheet is not material to the investor’s understanding, then the issuer may elect to present an alternative to its audited balance sheet. [Jan. 26, 2009]

Consequently it is fair to ask why the SEC would adopt a standard for crowdfund issuers under Section 4(a)(6) that is more stringent and demanding that the standard applicable for similarly-situated issuers under Regulation D?

Perhaps this line of thinking will help the SEC reconsider its decision to required audited financial statements in its crowdfunding rules.

SEC Proposes Rules for Regulation A+

Posted In Crowdfunding

The SEC yesterday announced proposed regulations for so-called Regulation A+.

Video Interview on CrowdFundBeat

Posted In Crowdfunding

It was a pleasure meeting Sydney Armani at our offices in Atlanta last week.  Here is the video interview he recorded:

Forbes on Real Estate Crowdfunding

Posted In Crowdfunding

Forbes takes an in-depth look at real estate crowdfunding, through an interview with Nav Athwal, CEO of RealtyShares.

Michigan Senate Passes Crowdfund Bill

Posted In Crowdfunding

The Michigan Senate has passed an intrastate crowdfunding bill that was originally proposed by the state's House of Representatives.  Because it was originally proposed by the House, it is expected to be confirmed there before being sent to the Governor for signature.

2013 Legal Elite from Georgia Trend Magazine

Congratulations to all my colleagues at Taylor English Duma who were named in the "Legal Elite" for 2013 by Georgia Trend magazine:

Bankruptcy/Creditors’ Rights

Stephen C. Greenberg

Business Law

Harold E. Gill, Jr.

Marc Douglas Glenn

Bob J. Goldberg

Al B. Hill

Anthony T. Polvino

Mark I. Sanders

Corporate Law

Jody Arogeti Brown

George C. Gaskin

Emily Stuart Horn

Melissa E. McMorries

Mark I. Sanders

Jonathan B. Wilson

Jeff D. Woodward

General Practice

Foy R. Devine

Eric S. Fisher

John M. Gross

Henry M. Quillian III

Labor & Employment

Ilene W. Berman

Scott G. Blews

Randy C. Gepp

Amy Burton Loggins

Scott M. Porter

Marc A. Taylor

Personal Injury

Foy R. Devine


Julian A. Fortuna

Vivian D. Hoard

Melissa E. McMorries

Judge Sanctions Porn Troll

Posted In Industry, Litigation

In a victory for corporate defendants that often face baseless suits intended to extort a quick settlement, a judge this week imposed sanctions on so-called "porn troll" Prenda.

Prenda had filed multiple suits against Comcast, AT&T and other internet service providers, claiming copyright infringement arising from the downloading of copywritten pornographic materials.  The defendants claimed that the claims were baseless and that Prenda had brought the claims in hopes of extorting a quick settlement from corporations looking to avoid an association with pornography.

U.S. District Judge Patrick Murphy did not mince words:

“These men have shown a relentless willingness to lie to the court on paper and in person, despite being on notice that they were facing sanctions in this court, being sanctioned by other courts and being referred to state and federal bars, the United States Attorney in at least two districts, one state attorney general and the Internal Revenue Service.”

Judge Murphy ordered Prenda to pay more than $260,000 in attorneys' fees and litigation costs to the defendants.  Earlier this year a federal judge in California also ordered Prenda to pay defendants' attorneys' fees based on similar reasoning.

Because of the high cost of defending litigation, plaintiffs willing to aggressively plead cases can often extort settlements from defendants who are willing to settle at a price they think will be less than their cost of litigation.  I covered this phenomenon and described the high economic costs resulting from the practice in my 2005 book, Out of Balance.

Taylor English Client, Bohemian Guitars, Featured in Wall Street Journal Article on Crowdfunding

Posted In Crowdfunding

Taylor English Duma client, Bohemian Guitars, was featured in a lengthy article in the Wall Street Journal on crowdfunding.

The article describes the Invest Georgia Exemption and other state-based crowdfunding provisions. State-based provisions like the IGE are sometimes suitable for securities offerings in lieu of a private placement under Rule 506 and in the absence of interstate crowdfunding that will eventually be feasible under Section 4(a)(6) of the Securities Act of 1933 (via the JOBS Act).

Bohemian Guitars was the first company to close a round of funding under the Invest Georgia Exemption and Taylor English Duma represented the company in that offering.

Is Crowdfunding Filling the Gap for Community Banks

Posted In Crowdfunding

Alternative investment expert Anna Timone asks whether crowdfunding will fill the gap in the need for capital that is resulting from a decrease in venture lending by community banks.

Banks in general (and not just community banks) are lending less than they did before 2008.  In addition, the loans that are getting made are generally better collateralized and more risk-free than before.  For a growing company that is looking for capital to grow a balance sheet, banks are rarely a satisfying source for loans.  Crowdfunding may prove an alternative means to fill the gap.

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