Archive for the ‘Exempt Offerings’ Category

What are “Securities”?

Wednesday, May 13th, 2009

On what seems like a weekly basis, an existing or potential client will ask me whether the raising of capital for a business venture (a specific proposed plan of investment, purchaser incentive arrangement or some other system of providing a benefit to a participant in exchange, at least potentially, for a return based upon the success of the business endeavor being considered) will amount to an offer of the sale of securities, subjecting the investor with the burden of compliance with the Securities Act of 1933 (either through registration or exemption compliance). Depending upon who you ask, you may find the answer you are looking for with respect to your plan, but as a rule of thumb it is my belief (primarily due to the great risk in the event that you are wrong in your interpretation) that if you are interested in raising capital, or bringing in participants into your business endeavor, realize that the SEC takes a rather broad view of what “securities” are.

When most folks think of securities, they think of the stock exchange, stock in large corporations, hedge funds and the like. They think of stock brokers and dealers, wheeling and dealing on Wall Street. However, securities are not solely limited to equity instruments issued by a corporation. The exchange of a few promissory notes (whether convertible in the future to equity, or not) in exchange for borrowed funds, may be the issuance of “securities”. It is highly recommended that you not make assumptions in this area, and if there is any doubt that you seek competent legal counsel to analyze your plan.

If the plan that is being considered will amount to the issuance of securities, you need to always remember that there are only three possible outcomes of your activity: 1) You take the appropriate steps to register the issuance with the SEC, 2) You take proper steps to exempt the issuance or offer (and appropriate filings are made depending upon the exemption being applied for), or 3) your issuance is illegal. There are no other results, and “illegal” is definitely to be avoided, so I urge you to be careful.

Tom Grella

SEC Form D

Monday, May 11th, 2009

New Look, New On-Line Filing

The requirements of Filing Form D with the Securities And Exchange Commission, for a private placement of securities under Regulation D was changed effective as of March 15 of this year. For many years, the filing of Form D was accomplished by the filing of a paper original and five copies of Form D, through regular or express mail service. The SEC was willing to send back a stamped copy, and it is somewhat unclear the extent to which a filed Form D, absent investor complaint, was ever examined by anyone at the SEC. Now nearing the end of the first decade of the 21st century, the SEC has just mandated a new form, and a new filing mechanism. That mechanism is electronic, and manual filing will no longer be accepted. This newly implemented system is hoped to be a more effective manner for the SEC to gather information and regulate the private placement of securities in the future. It would seem that there will be a little added complication up front, but in the long run it is hoped that electronic filing will be less complicated. Issuers of private securities to be exempted under Rule D will need to obtain an EDGAR filing code in order to file electronically, however filing can be accomplished from any computer with Internet access. There are a few additional pieces of information that will need to be disclosed over the prior form, but a few outdated and unnecessary items of information have been deleted as well. Overall, it is my belief that due to an uptick in private placements (largely due to the fact that private entrepreneurs are finding that with Bank lending being less and less available, and private investors have much less confidence in the stability of the stock market, all making private investment mechanisms more attractive to those looking for capital, as well as those looking to invest) the new electronic filing will, after a normal learning curve for those raising capital and their legal counsel, help streamline the process of private placement securities compliance.

Tom Grella