Blog - Thomas Law LLC

SEC Proposes Crowdfunding Rules

The SEC proposed rules this week implementing the crowdfunding provisions of the JOBS Act. Under the proposed rules:

A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
Investors, over the course of a 12-month period, would be permitted to invest up to:
- $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.
- 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000. During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.
Certain companies, including SEC reporting companies and companies that have no specific business plan, would be ineligible to use the crowdfunding exemption.
Securities purchased in a crowdfunding transaction could not be resold for a period of one year.
Companies conducting a crowdfunding offering would be required to file certain information with the SEC, provide it to investors and the relevant intermediary facilitating the crowdfunding offering, and make it available to potential investors.
Crowdfunding transactions would be required to take place through an SEC-registered intermediary – either a broker-dealer or a funding portal.

The Commission will seek public comment on the proposed rules for 90 days.

By Jeffrey Thomas|October 24th, 2013|Securities Law|

SEC Awards $14 Million to Whistleblower

On October 1, 2013, the SEC announced an award of more than $14 million to a whistleblower. The SEC’s whistleblower program, established by the Dodd-Frank Act, rewards high-quality original information that results in an SEC enforcement action with sanctions exceeding $1 million. Awards can range from 10 percent to 30 percent of the money collected in a case. While the SEC has made several other awards under the whistleblower program, this one is by bar the largest to date.

By Jeffrey Thomas|October 2nd, 2013|Securities Law|

SEC Adopts Rules Establishing Permanent Registration Regime for Municipal Advisors

On September 18, 2013, the SEC adopted rules establishing a permanent registration regime for municipal securities advisors, as required by the Dodd-Frank Act. While Dodd-Frank defined the term “municipal advisor” broadly to include, among other things, those who advise municipal entities about the issuance of municipal securities and those who solicit municipal entities for investments, the new rules contain a number of important exclusions from the definition of “municipal advisor,” including exclusions for public officials and employees of municipal entities, registered investment advisers, and underwriters. The new rules require municipal advisors to register on a staggered basis beginning July 1, 2014. The temporary registration regime, which was implemented in 2010, will remain in effect until December 31, 2014.

By Jeffrey Thomas|September 24th, 2013|Securities Law|

SEC Issues Investigative Report Admonishing Exchanges and Investment Professionals Who Offer Futures Products Based on Indices to Monitor the Compositions of Those Indices

Futures products based on “broad-based” securities indices – indices whose holdings are diffuse – are regulated by the Commodity Futures Trading Commission. Futures products based on “narrow-based” securities indices – indices whose holdings are concentrated in a few securities – by contrast, are regulated jointly by the SEC and CFTC. The Exchange Act requires that (1) any futures product based on a “narrow-based” securities index be listed on a national securities exchange or national securities association registered under the Exchange Act and (2) any exchange that effects transactions in securities be registered as a national securities exchange or be exempt from registration.

On August 8, 2013, the SEC issued an investigative report under Section 21(a) of the Exchange Act concerning violations of the foregoing requirements by Eurex, a German derivatives exchange, relating to Eurex’s sale of security futures products to U.S. investors. According to the report, when Eurex first started selling futures on the Euro STOXX Banks Index more than 10 years ago, that index was broad-based and did not trigger SEC oversight of the futures product or Eurex. When Eurex reviewed the index’s composition in 2011, however, it discovered that the index had become narrow-based about 18 months earlier. While the SEC did not bring an enforcement action against Eurex, due in part to Eurex’s substantial cooperation and remedial efforts, the SEC admonished exchanges and investment professionals to monitor the compositions of indices on which financial products are based:

“When offering financial instruments based on indices, exchanges and investment professionals should take the appropriate steps to verify that they are in compliance with the federal securities laws, which could include establishing policies and procedures to appropriately monitor the composition of indices on which futures are […]

By Jeffrey Thomas|August 14th, 2013|Securities Law|

SEC Amends Broker-Dealer Rules

The SEC recently adopted amendments to the broker-dealer Net Capital Rule (Exchange Act Rule 15c3-1), Customer Protection Rule (Rule 15c3-3), Books and Records Rules (Rules 17a-3 and 17a-4), Reporting Rule (Rule 17a-5), and Notification Rule (Rule 17a-11). The adopting releases can be found here and here.

By Jeffrey Thomas|August 7th, 2013|Securities Law|

SEC Releases Form PF Data

Rules adopted under the Dodd-Frank Act require advisers to private funds with at least $150 million in assets under management to periodically file Form PF with the Commission. Due to the rolling compliance dates the SEC adopted for Form PF, the SEC has only recently received a complete set of initial filings. A July 25, 2013 report to Congress by the staff of the SEC’s Division of Investment Management disclosed that 2,305 advisers are currently filing Form PF with the SEC. Those advisers advise 18,015 funds, broke down as follows: 6,683 hedge funds; 5,928 private equity funds; 2,922 funds categorized as “other private fund types”; 1,121 real estate funds; 966 securitized asset funds; 329 venture capital funds; and 66 liquidity funds. The report can be found here: http://www.sec.gov/news/studies/2013/im-annualreport-072513.pdf.

By Jeffrey Thomas|July 31st, 2013|Securities Law|

SEC Announces Enforcement Initiatives

The SEC’s Enforcement Division recently announced the following three new initiatives:

The Financial Reporting and Audit Task Force, which will focus on identifying securities-law violations relating to the preparation of financial statements, issuer reporting and disclosure, and audit failures;

The Microcap Fraud Task Force, which will focus on fraud in the issuance, marketing, and trading of microcap securities; and

The Center for Risk and Quantitative Analytics, which will focus on identifying risks and threats that could harm investors, and assist staff nationwide in conducting risk-based investigations and developing methods of monitoring for signs of possible wrongdoing.

By Jeffrey Thomas|July 10th, 2013|Securities Law|

SEC Votes to Lift Ban on General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings

Implementing a key provision of the JOBS Act of 2012, the SEC voted today to adopt amendments to eliminate the prohibition against general solicitation and general advertising in certain securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act. The amendments will go into effect 60 days after they are published in the Federal Register. The SEC also voted to propose amendments to Regulation D, Form D and Rule 156 under the Securities Act to enhance the Commission’s ability to evaluate changes in the market and to address the development of practices in Rule 506 offerings.

By Jeffrey Thomas|July 10th, 2013|Securities Law|

SEC to Force Admissions of Wrongdoing in Some Cases

The SEC’s practice for decades has been to allow defendants to settle cases without admitting or denying liability. That practice, according to SEC Chairman Mary Jo White, is going to change – at least in some cases. Chairman White, at a conference organized by the Wall Street Journal, said that a new practice of forcing defendants to admit wrongdoing will be applied in “cases where … it’s very important to have that public acknowledgment and accountability.” The SEC will retain its “no admit, no deny” practice for most cases.

Last year, the SEC began forcing defendants who had already admitted wrongdoing in parallel criminal cases to admit liability as a condition of settlement with the SEC.

Defendants are reluctant to admit wrongdoing in SEC settlements because that admission can be used in private litigation. For that reason, the SEC may be forced to take more cases to trial as a result of the new practice.

By Jeffrey Thomas|June 19th, 2013|Securities Law|

SEC Proposes Rules for Money Market Reform

Almost a year after former Chairman Schapiro’s failed attempt at reform, the SEC has once again proposed amendments to the rules that govern money market mutual funds. The SEC proposed two alternatives: The first alternative would require money market funds to sell and redeem shares based on the current market-based value of the securities in their underlying portfolios, i.e., transact at a “floating” NAV. The second alternative would require money market funds to impose a liquidity fee if a fund’s liquidity levels fell below a specified threshold and would permit the funds to suspend redemptions temporarily, i.e., to “gate” the fund under the same circumstances. The release announcing the proposed rules can be found here: http://www.sec.gov/rules/proposed/2013/33-9408.pdf

By Jeffrey Thomas|June 5th, 2013|Securities Law|