Emerging Markets Law

Showing 3 posts from November 2014.

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)

https://www.youtube.com/watch?v=XZ-czQkc0S8

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. 

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