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Archive for Micah Miller

Accredited Investor Status In Federal Securities Law

Accredited Investor Status In Federal Securities Law

The term “accredited investor” is frequently heard in the field of financial investing. But many investors lack an in-depth understanding of the implications of accredited investor status or how it is acquired, especially investors accustomed to purchasing only assets sold in offerings that are registered with the SEC.

What is an Accredited Investor?

From a practical perspective, an accredited investor is a person to whom companies can sell securities[i] (e.g., stocks or bonds) in an offering that is not registered with the Securities Exchange Commission (SEC). Regulations passed under the Securities Act of 1933 include several definitions specifying how different types of persons can qualify as accredited investors.[ii] By implication, relevant regulations identify all such accredited investors as persons from whom companies may raise capital without first making detailed public disclosures. Essentially, accredited investors are deemed to have sufficient financial sophistication to forego the requirement of certain regulatory disclosures prior to investment.

Why is Accredited Investor Status Important?

Most investment in U.S. companies is raised through the sale of securities to accredited investors in “unregistered” offerings, which term describes offerings of securities that are not registered with the SEC. Registration is a laborious process that requires detailed public disclosures of a company’s business information and plans.

Despite their frequent use, unregistered offerings are unlawful unless they comply with the detailed guidelines of a “registration exemption.” The negative consequences of unlawful securities offerings can be very significant.[iii] Exemptions from registration allow for the lawful sale of securities in “exempt offerings.” The application of a registration exemption is contingent on compliance with detailed regulations and guidelines.[iv] Qualifying for an exempt offering can be difficult but is generally much easier when securities are sold only to accredited investors in “private offerings.” In 2019, according to the SEC, capital raised in exempt offerings accounted for about 70% of all capital raised in the United States and the most frequently used exemptions were those applicable to private offerings.[v] Thus, the most used avenues to raise equity capital in the United States are probably the registration exemptions for private offerings.
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Written by | Posted in Accredited Investor

Changes To Corporate Capital In Equity Financing Transactions, Part II

Changes To Corporate Capital In Equity Financing Transactions, Part II

How Are Fiduciary Duties Applicable to Decisions Authorizing Changes to Corporate Capital?

The first post in this series analyzed whether shareholders may seek remedies in the context of charter amendments to facilitate changes to corporate capital in equity financings. The conclusion was that if an amendment to a corporate charter is properly adopted (and doesn’t violate an independent contractual obligation), shareholders can obtain a remedy only if the corporate action can substantiate a claim for breach of fiduciary duty against enough directors or control persons.

In situations where corporations are needy for additional capital, existing and potential stockholders often seek to maximize their potential benefits upon providing investments. They may control the company or control board seats. Some of the actions they take can adversely affect other shareholders’ interests. For instance, they may create a senior class of stock with superior right and preferences. Consequently, it is worthwhile to consider when shareholders can claim a breach of fiduciary duty in connection with equity financings or recapitalizations. This part of the series addresses how fiduciary duties of corporate directors and control persons apply in these circumstances in Texas and Delaware.

Directorial Fiduciary Duties in General

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Written by | Posted in Corporate Capital Changes • Equity Finance Transactions

Changes To Corporate Capital In Equity Financing Transactions, Part I

Changes To Corporate Capital In Equity Financing Transactions, Part I

If the rule isn’t that anything goes with enough votes, what is it?

Experienced entrepreneurs and investors alike understand that equity dilution is a fundamental aspect of investing in corporations. This is especially true when companies anticipate needing additional capital prior to their prospective profitability. But investors do not always trust management to act fairly and wisely when they sell additional stock or restructure shareholder rights.

This is the first part in a series of blogs focusing on modifications to corporate capital in equity financings. In this first part, I evaluate the law applicable to charter amendments in both Texas and Delaware. As many readers know, Delaware is the leading U.S. jurisdiction for domiciling corporations and has a highly developed body of corporate decisional law. Texas does not benefit from the same depth or breadth of case law. Accordingly, Texas courts—like those of other states—frequently look to Delaware precedent when making determinations in connection with Texas corporate law. Nevertheless, both statutory and judge-made law in Texas and Delaware are different in important aspects.

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Written by | Posted in Corporate Capital Changes • Equity Finance Transactions

A Crypto Quagmire: Civil And Criminal Charges Filed Against A Coinbase Manager For Insider Trading Of Securities

A Crypto Quagmire: Civil And Criminal Charges Filed Against A Coinbase Manager For Insider Trading Of Securities

Recently the SEC filed suit for insider trading of securities against a high-level employee at the popular crypto exchange, Coinbase. The SEC filed its civil suit in Seattle on July 22, 2022, against and his co-conspirators. On the same day, the DOJ announced the unsealing of a federal indictment against the same defendants in the Southern District of New York.[i] The following discusses the allegations and draws conclusions regarding the implications for the crypto industry.

Both crypto exchanges and issuers of tokens, should take heed of this development. Beyond the intrigue and drama, the facts of the case are instructive regarding the legal quagmire faced by many crypto industry participants. The relevant coins appear to have been designed to avoid definition as a security. Apparently, Coinbase’s due diligence and analysis agreed that the relevant tokens are not securities.

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Written by | Posted in Cryptocurrency

Crypto Currency Legislation Pending In The 50 States

Crypto Currency Legislation Pending In The 50 States

Introduction

With the crypto industry’s dramatic loss of market capitalization in recent weeks, some of the shimmer and gravitational attraction has shaken off digital assets. Consequently, some of the impetus behind legislative efforts related to digital assets and technology may have been lost this year. But digital assets and the blockchain technology on which they reside are likely to continue to interest investors and consumers and to play an important, albeit sometimes disruptive, role in modern economies.

Therefore, state legislatures remain likely to pass several crypto-related bills that vary widely in their subject matter and scope, including proposals that clarify existing regulation, create new regulatory frameworks, and dedicate state resources to support or study the impact and use of digital assets. This month the National Conference of State Legislatures surveyed legislation pending in each of the U.S. states and territories. See Heather Morton (June 6, 2022), Cryptocurrency 2022 Legislation, NCLS.ORG. This post synthesizes and summarizes the content of that publication, with a focus on identifying general trends in the subject matter of the pending bills.

Despite significant legislative interest in crypto, not all states have bills pending this year. The legislatures of Nevada, North Dakota, and Texas are at rest during this fiscal year, with no regular sessions scheduled. Others had no digital assets legislation introduced. At the time of the NCLS report, the following states and territories had not introduced digital assets legislation in 2022: Arkansas, Delaware, D.C., Puerto Rico, Guam, Maine, Maryland, Texas, Nevada, U.S. Virgin Islands, Wisconsin, and South Dakota.

New York, Hawaii, and Arizona are among the jurisdictions with the most bills pending related to crypto and digital assets. Filed bills in New York include one that would create a moratorium on cryptocurrency mining centers. Another would create new criminal offenses, including for token fraud, rug pulls, private key fraud, and fraudulent failure to disclose interests in virtual tokens. New York would also require certain disclosures in advertisements involving virtual tokens. California also has significant, substantive legislation pending.

Pending Legislative Proposals

Below is a list the subject matter addressed by the most common bills pending and the states in which they have been proposed. These proposals would:

(1) Allow or prohibit some or all political subdivisions or agencies to pay employees and others in virtual currency, to accept payment in virtual currency, or to use virtual currency as collateral in state financings.

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Written by | Posted in Cryptocurrency • Tax Legislation
 
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