1 / 25

General Practice, Solo and Small Firms Conference Securities Law In Brief October 21, 2011

General Practice, Solo and Small Firms Conference Securities Law In Brief October 21, 2011. Herrick K. Lidstone, Jr. Burns, Figa & Will, P.C. 6400 South Fiddlers Green Circle, Suite 1000 Greenwood Village, Colorado 80112  (303) 796-2626. Securities Law Deskbook. Overview.

lillian
Download Presentation

General Practice, Solo and Small Firms Conference Securities Law In Brief October 21, 2011

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. General Practice, Solo and Small Firms ConferenceSecurities Law In BriefOctober 21, 2011 Herrick K. Lidstone, Jr. Burns, Figa & Will, P.C. 6400 South Fiddlers Green Circle, Suite 1000 Greenwood Village, Colorado 80112  (303) 796-2626

  2. Securities Law Deskbook

  3. Overview • Securities Act of 1933 • Securities Exchange Act of 1934 • State "Blue Sky" Laws

  4. Jurisdictional Issue • For enforcement and private rights of action • Application of the Securities Laws depend on whether the transaction involved the offer or sale of a SECURITY

  5. Definition of a Security • Statutory • Federal and state Laws have similar, broad definitions • Intended to embody "a flexible rather than a static principal, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.". • SEC v. W. J. Howey & Co.(1946)

  6. 1933 Act, Section 2(a)(1) Unless the context otherwise requires (1) The term “security” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

  7. Investment Contract (Howey) • Investment of money • In a common enterprise • Where investor expects profits • From the efforts of others

  8. Sale of a Business • Structure • Asset sale or stock sale • Landrethand Gould cases

  9. Debt as a Security • Motivation of the parties • Distribution plan • Reasonable expectations of investor • Are other regulatory schemes applicable? • Reves

  10. Partnerships and LLC Interests • Economic realities versus • Williamson v. Tucker factors • Member Managed LLC versus Manager Managed LLC

  11. Joint Ventures • Enforcement du jour in Colorado • January 2011 and continuing Joseph v. HEI Resources (Denver state court case no. 09CV7181)  • April 2011 In re Mieka Corporation (Securities Division cease and desist) • August 2011 and continuing SEC v. Shields and Geodynamics (D. Colorado CA 11-CV-02121-REB)

  12. Exemptions • Offers and sales of securities must be: • Registered or exempt from registration • and with full disclosure • or possible felony violation, civil or administrative enforcement or private right of action

  13. Transactions Not Involving a Public Offering • Section 4(2) of the 1933 Act • Similar state exemptions • Ralston Purina (1953)

  14. What is "Not A Public Offering"? • No general solicitation • Each offeree has access to information • Each offer has ability to understand the information • Each offer has a bargaining position

  15. Regulation D • Rule 504 • Rule 505 • Rule 506 • Accredited Investors only. (Section 4(5))

  16. Regulation D • Limitation on the manner of the offering. (general solicitation and the internet) • Disclosure obligations - Confidential Information Memorandum • Resale restrictions • Number of investor restrictions (505 and 506) • Dollar restrictions (504 and (505) • Risk of integration of two or more offerings

  17. Other Exemptions • Intrastate Rule 147 • Regulation S • Need to satisfy state law requirements - "covered securities"

  18. Who Can Help Sell a Private Placement? • Broker dealers are licensed under the 1934 Act and star law, and are members of FINRA • Officers and directors of the issuer. Rule 3a4-1 • Finders may no longer exist

  19. Finders - Paul Anka (1991) • Only provide names of potential investors • Not be involved in sales effort or negotiations • Not perform due diligence for contacts • Finders fee is less than normal brokerage commission • Never before and never plan to again

  20. Finders - 2008 speech and Brumberg (2010) • Any transaction-based compensation likely to result in broker-dealer classification • Not likely to reissue the Paul Ankaposition were the SEC staff to be asked • State laws and regulations equally stringent

  21. Enforcement - A Reason to Comply • SEC informal investigation • Formal investigation (subpoena power) • Administrative action (cease and desist and monetary penalties) • Civil action (TRO, injunction, damages, disgorgement, director bar) • Criminal action • State securities agencies have similar authority

  22. Private Right of Action • Under the 1933 Act for rescission and interest (Section 5 violation -12(a)(1))  • Material misstatement or omission (12(a)(2) - but only if a prospectus is used - Gustafson, 1995) • Rule 10b-5 "fraud in the purchase or sale of securities"  • Control person liability (1933 Act, S15; 1934 Act, S20(a))

  23. Rule 10b-5 Elements • Plaintiff must be purchaser or seller of a security • Securities must have been purchased or sold by a fraudulent scheme or a material misstatement or omission  • Reliance by plaintiff on fraudulent scheme or material misstatement or omission  • Plaintiff must have exercised due care • Defendant must have acted with scienter • Causation - was the scheme/misrepresentation/omission a cause of the loss • No aiding and abetting liability in a private action

  24. Projections and Puffery • Projections must • Have a reasonable basis • Be made in good faith • Be accompanied by meaningful cautionary disclosure • Not be statements of historical fact • Puffery • Lacks specificity • No reasonable person would have relied on such a statement

  25. Thank you

More Related