Emerging Markets Law

Showing 59 posts from 2014.

Data Security Breach Policy in 2015

As you look at changes to your data security breach practices from 2014 to 2015, there is a a big potential shift in exposure worth keeping in mind.  Consumer losses following a data breach are (so far) not gaining much traction in the courts.  B2B claims, on the other hand, may present real issues in the coming years.  Target is fighting such claims with its banks, about who must pay to replace the millions of compromised consumer credit cards at issue. 

Continue reading Data Security Breach Policy in 2015 ›

President Signs Tax Extenders Legislation

President Obama has signed into law H.R. 5771, the tax extenders legislation styled as the "Tax Increase Prevention Act of 2014".

As previously reported, the tax extenders bill extends the second generation biofuel producer credit through Jan. 1, 2015, extends credits for biodiesel and renewable diesel through Dec. 31, 2014 and extends the Section 45 renewable energy tax credits through Jan. 1, 2015.

Jonathan B. Wilson is a partner in the corporate law department of Taylor English Duma where he represents growing companies in finance, securities and technology matters.   He can be reached at jwilson@taylorenglish.com.

Senate Passes Tax Extenders Legislation

The Senate last week passed tax extenders legislation that includes an extension of most renewable energy tax credit programs through the end of 2014.

The Senate passed the bill, titled “Tax Increase Prevention Act of 2014,” or H.R. 5771, by a vote of 76 to 16.

The House of Representatives had previously passed bill (entitled the "Tax Increase Prevention Act of 2014," HR 5771) by a vote of 376 to 46 .  The Senate passed the bill by a vote of 76 to 16.  President Obama is expected to sign the measure into law this week.

The bill extends the second generation biofuel producer credit through Jan. 1, 2015.  Credits for biodiesel and renewable diesel are extended through Dec. 31, 2014, while the Section 45 renewable energy tax credit is  extended through Jan. 1, 2015. The bill would also extend the special allowance for second generation biofuel plant property through Jan. 1, 2015 and extend the excise tax credits relating to certain fuels through Dec. 31, 2014.

While the bill benefits taxpayers who already have qualifying projects in place, because it is being enacted at the end of the tax year (and will not guarantee any benefit to projects in 2015 and beyond) the measure does not add any certainty to the long-range viability of these projects.  Investors cannot predict whether Congress will continue to extend these measures after-the-fact in the future.

Senator Ron Wyden, D-OR., said in a statement from the Senate floor “Congress can pass this $41 billion bill, but it cannot change anything taxpayers did six, eight or 10 months ago. Those decisions have already been made, and those actions have already been taken. The only new effects of this legislation apply to the next two weeks,” he said. “That’s not nearly enough time for the important provisions in this package to catalyze growth among businesses or to support families in a meaningful way. It’s not enough time to put a dent in veterans’ unemployment, to start a clean energy project and hire new workers, or to help a student who’s on the fence about whether to enroll in college next semester.”

Most of the tax credit programs at issue had their birth in the Energy Policy Act of 2005, which was supported by President George W. Bush.  Nevertheless, since the American Recovery Act of 2009, Republicans have tended to resist extending the provisions, often holding them in abeyance until the end of the year.  We have seen year-end tax extenders bills now for at least the past three years.

The next Congress should look at ways of making these provisions longer-lasting as a way of encouraging greater certainty to entrepreneurs and investors.

Jonathan B. Wilson is a partner in the corporate law department of Taylor English Duma where he represents growing companies in finance, securities and technology matters.   He can be reached at jwilson@taylorenglish.com. 

Crowdfunding Down Under

Posted In Crowdfunding

A Committee, appointed by the Australian Treasury, has released a Report, making proposals for the modernization of the Australian financial system, including the adoption of rules to facilitate crowdfunding.

The Report does not have the force of law and is subject to comments from industry and other stakeholders, with the comment period expected to last through March 31, 2015.

The Australian Financial System Inquiry was created by the Australian Treasury to develop a blueprint for the modernization of the Australian financial system.

According to the FSI's website:

Previous financial system inquiries, including the Campbell Report in 1981 and Wallis Report in 1997, were the catalysts for major economic reforms in Australia. The Campbell Report led to the floating of the Australian dollar and the deregulation of the financial sector. Whilst the Wallis Inquiry led to streamlined financial services regulation, the creation of the Australian Prudential Regulation Authority (APRA), and the current form of the Australian Securities and Investments Commission (ASIC).

These reforms underpinned Australia's economic stability and growth over the past thirty years. The deregulation of the financial sector has meant the volume and quality of financial services in Australia has dramatically improved, while the restructure of financial regulators is considered to be one of the main reasons Australia weathered the global financial crisis well relative to international peers.

It has been sixteen years since the last financial system inquiry. While the financial sector has served Australia well in this time, it has been transformed by forces such as domestic and international economic and financial crises, a substantial regulatory reform agenda, the growth in superannuation, changes in industry structure, new competitive dynamics, technology, innovation and broader macroeconomic trends.

Australia is only the world's 12th largest income but has the 5th highest income per capita.  Adopting a robust crowdfunding system in the country would be a significant step towards the recognition of crowdfunding on a global basis.

Jonathan B. Wilson is a partner in the corporate law department of Taylor English Duma where he represents growing companies in finance, securities and technology matters.   He can be reached at jwilson@taylorenglish.com. 

Chief Legal Officers Looking to Reduce Legal Spending

Legal consulting firm Altman Weil has released their 15th annual 2014 survey of chief legal officers and it suggests that CLOs are still looking to reduce legal spending.  Among its findings:

  • CLOs continue to ask their law firms to provide discounts of 5% to 15% from standard billing rates; and
  • CLOs continue to pursue alternative fee structures and fixed fee arrangements to reduce their legal spending.

Important, however, is the lack of focus on the report on the rates charged by law firms and the way law firms staff individual matters.  Those factors often matter more in the ultimate fee charged for an entire matter.

Other firms, however, staff matters with a single attorney who is capable of handling all of the tasks in the matter.  Doing this eliminates the overlap and duplication of effort associated with the traditional approach.  Eliminating that waste is often a superior way to reduce legal spending on a particular matter.

In addition, a focus on "discounts" ignores the overall pricing for legal service.  Most law firms pay their non-partner lawyers a fixed salary.  Such a high level of expense requires the firm to charge high billable rates in order to cover their costs.

Firms like Taylor English Duma, however, avoid this problem by paying their lawyers only for the work they actually perform.  The end result is a lower billing rate (even after accounting for "discounts") that produces a lower total fee for a specific matter.

Surveys like the Altman Weil survey help to bring focus on the challenges of reducing legal spending, but truly understanding legal spending often requires a deeper analysis.

Jonathan B. Wilson is a partner in the corporate law department of Taylor English Duma where he represents growing companies in finance, securities and technology matters.   He can be reached at jwilson@taylorenglish.com. 

Delaying Crowdfunding to Save Crowdfunding

Posted In Crowdfunding

Berkeley Law Professor, Stephen Solomon, writing in the New York Times, suggests that the SEC's "dawdling" with crowdfunding rules may be having the effect of "saving crowdfunding."

There is a little truth to that.  Issuing crowdfunding rules by the end of 2012, as was required by the JOBS Act, would have squelched efforts by the states to adopt their own crowdfunding rules.  Instead, with the SEC deciding that it is not obliged to follow laws passed by the Congress and signed by the President, there has been more than enough political oxygen for the states to experiment with crowdfunding in the limited sphere permitted under the 1933 Act and SEC Rule 147 for intrastate offerings.

As I've written before, intrastate crowdfunding has created opportunities for small, locally-focused financings, largely involving real estate.  Real estate projects satisfy the 80% of assets test under Rule 147 and generally have the kind of local interest needed so that 100% of the investors involved will be resident in the state.

But if the SEC's refusal to follow the law by issuing regulations has saved crowdfunding, it's more a matter of  "bombing the village in order to save it."

The SEC's worries about fraud in crowdfunding appear to be a knee-jerk reaction to change, more justified in theory than in practice.  The SEC's solution to the fraud problem, proposing that most crowdfund issuers obtain and disclose audited financial statements would do little to eliminate fraud and would make most crowdfund offerings prohibitively expensive.

(If you are truly a fraudster, and wanted to bilk investors through crowdfunding, you could create a new entity, obtain audited financials (your de novo startup would have no historical financial results to audit) and still make off with the proceeds of your crowdfund offering.

If the SEC really wants to save crowdfunding it would be better served by listening to practitioners involved in raising capital for small business and to adopt rules that are more carefully calculated to work in the real world.

Congressman Patrick McHenry Speaks on JOBS Act

Posted In Crowdfunding

Here is a video of Congressman Patrick McHenry (R-NC) speaking out on the JOBS Act and the promise of crowdfunding and small-cap IPOs.  (Hat tip: Dara Albright)


The JOBS Act was intended to encourage capital formation for small businesses.  Because small businesses are the primary drivers of new job creation, Congress thought that it would spur job creation by making capital formation easier for small business through crowdfunding.

The SEC, however, has dragged its feet and has failed to adopt regulations that would make true interstate crowdfunding under the JOBS Act legal.  The JOBS Act required the SEC to adopt regulations within 180 days of the law's passage but now, more than 2.5 years later, the SEC has not been able to adopt final regulations.

Are Big Law Firms Desperate?

Are big law firms truly desperate to win more work? Some big company GCs think so.  Those in-house lawyers at large companies use budgeting and other alternative fee arrangements to force big law firms to give discounts on their rates.

But the practice might not be as effective as some lawyers think.  The trust is that big law firm rates are so high that even a substantial discount (measured as a percentage) still leaves the firm taking home a huge sum.

Purchasers of legal services would be better served by looking at the all-in value of their lawyers, measured by the length of time required to complete a project and the final bill for the entire project.

At Taylor English Duma our internal compensation system ensures efficiency and high-value delivery in ways that big law firms can't match.

Jonathan B. Wilson is a partner in the corporate law department of Taylor English Duma where he represents growing companies in finance, securities and technology matters.   He can be reached at jwilson@taylorenglish.com. 

Congress Writes Letters to SEC

It must be a sign of the times that even Members of Congress feel so much frustration with the pace of the SEC's efforts to implement legislation that they are forced to write letters to the SEC.

On September 23rd, four Democratic Senators (including Senators Levin and Warren) penned this letter to SEC Chair Mary Jo White (September 23, 2014), reminding her that it has been a year since the SEC proposed rules to implement the general solicitation provisions applicable to Regulation D (Rule 506(c)) without making those proposed rules effective.

The SEC's proposed rules, issued in the Fall of 2013, would require private issuers relying on Regulation D to upload copies of their offering materials to the SEC under Rule 510T if the issuers intend to engage in a public solicitation for their private offering.

The Democratic Senators in their letter, claim that the SEC's delay in implementing the rules leave investors with no protection against issuers.  Practitioners in the space might instead argue that the delay in implementing regulations also leaves entrepreneurs and prospective issuers in the unenviable position of having no clear path to raising funds while also ensuring compliance.

Two days later, however, members of the House Republican caucus sent their own letter to the SEC (September 25, 2014) asking the SEC to extend the exemption from blue sky compliance made possible under the JOBS Act to all issuers under Regulation A.

The 2012 JOBS Act modified the provisions of the rarely-used Regulation A to make it easier for issuers to raised larger amounts in qualified offerings under Regulation A without complying with the costly and time-consuming requirements of state-level blue sky laws.  When the SEC implemented the JOBS Act, however, it permitted blue sky pre-emption for only a narrow class of Reg. A issuers.

The House Republicans argue that extending blue sky pre-emption to all Regulation A issuers would encourage capital formation by lowering the cost of utilizing Regulation A.

How to Invest in a Crowdfunded Startup

Posted In Crowdfunding

Kendall Americo has a helpful introductory piece in Entrepreneur magazine on the top ten items to consider when you invest in a crowdfunded startup.

Americo says that investors should ask themselves ten key questions when they invest in a crowdfunded startup:

  • Is the investment for equity or a convertible note?
  • How and when does the investor get the money back?
  • How will the business make money?
  • How can the investor profit from an investment?
  • What rights come with an investment?
  • How will the investment money be used?
  • Who are the founders and key personnel?
  • What are the founders being paid?
  • Are the sales projections and profit projections reasonable?
  • What's the risk associated with investing in the startup?

Another question I would add to the list is, "who are the startup's primary endorsers and service providers?"  Having well-known early investors, board members or other endorsers (such as accountants and lawyers) can add a great deal of value to a startup.

Having well-known advisors involved in a startup means that the startup will be able to enjoy the benefits of the experience and networking the advisor brings to the table.  This can include valuable advice on how to accelerate the product development table and how to grow the management team, to valuable introductions to business partners and prospective institutional investors at a later stage.

Looking for well-known advisors in a startup can be a helpful indicator that the startup is headed for success.

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