Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

On May 22, 2016 several amendments to the Minnesota Revised Uniform Limited Liability Company Act, Chapter 322C of the Minnesota statutes, were passed into law. While most of the changes are immaterial or administrative in nature, the amendments also include a change to the default governance rules for board-managed limited liability companies.

Here is a list of the amendments, which are retroactively effective as of August 1, 2015:

  • Sections 322C.0201 and 322C.0205: Filings fees payable to the secretary of state in connection with the formation of an LLC or the filing of other records with the secretary of state have been included in the text of the statute. The amounts of the fees have not been changed from current levels, but including the fee amounts in the statute means that a future fee change would require a formal amendment to Chapter 322C.
  • Section 322C.0208: No filing fee will be required for the filing of annual renewals with the Secretary of State.
  • Sections 322C.1007 and 322C.1011: These sections, relating to conversions and domestications, were amended to clarify that the statutory requirement that a conversion or a domestication must be authorized by the “governing statute” of a foreign LLC does not mean that the governing statute must use the same terminology to describe the processes in question.
  • Section 322C.0407: Member consent is not required for grants of security in LLC property or for transfers to downstream direct or indirect subsidiaries.

The change to the member consent requirement in Section 322C.0407 warrants some further exploration.   Subdivision 4 of that section sets forth the default rules for board-managed LLCs.  Corresponding sets of rules are found in subdivisions 2 and 3 for member-managed LLCs and manager-managed LLCs, respectively.  For both board-managed and manager-managed LLCs, the statute establishes a set of actions that require unanimous member consent.  Among those actions is the sale or other disposition of all or substantially all of the LLCs assets, with or without goodwill and outside the ordinary course of business. The recent amendment to subdivision 4 means that unanimous member consent will not be required for a transfer meeting the foregoing description if it is only a “transfer” by reason of the granting of a security interest (whether or not it is in the ordinary course), or if the transfer is “to an organization all the ownership interests of which are owned directly or indirectly through wholly owned organizations by the company.”

A similar change was not made to subdivision 3’s member consent requirement, so, for a manager-managed LLC, unanimous member consent is still required under the default rules in connection with (for example) a secured financing facility. This puts lenders in an interesting position.  In order to ensure the grant of the security interest has been properly authorized, the lender would need to (i) understand the distinction that has just been introduced into Chapter 322C, (ii) determine whether the LLC is manager-managed or board-managed, and (iii) ask follow up questions if the LLC is manager-managed to determine whether the grant of the security interest has been unanimously approved by the members or whether the LLC’s operating agreement makes this a moot point.  Because, of course, the rules set forth in Section 322C.0407 only apply “to the extent the operating agreement does not otherwise provide” for the matter. (See 322C.0110, Subd. 2).

Practitioners should note that the exclusion from the member-consent requirement for transfers of assets to subsidiaries is only effective for wholly-owned subsidiaries. Even if an LLC is the owner of the overwhelming majority of the ownership interests in a subsidiary, the presence of a single other owner kills the member-consent carve out for the transfer.

Finally, the amendment raises once again the question of what exactly it would mean for an operating agreement to “otherwise provide” with respect to an issue.  For example, would a clause in a manager-managed operating agreement granting the manager the authority “to enter into financing arrangements on commercially reasonable terms” be sufficient to override the statutory requirement for unanimous member consent?  Only a court will be able to answer that question.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

On May 18, 2016, the Consumer Financial Protection Bureau (CFPB) issued a report on auto title loans.  Auto title loans are small-dollar, high interest, loans that are generally used by borrowers to cover emergency expenses between paychecks.  To obtain these loans, borrowers use their vehicles as collateral and the lender holds the vehicle title until the loan is repaid.  The auto title loans covered by the CFPB report required borrowers to repay the loan in full in one lump sum payment.  Twenty states permit single payment auto title loans and another five states permit auto title loans that are repayable in installments.

Among other things, the CFPB report found that:

  • One-in-five borrowers are unable to repay their loan and, therefore, have their vehicles seized by their lender;
  • Four-in-five auto title loans are not repaid in a single payment; rather, only about 12% of borrowers are able to pay their loans in full in one payment;
  • Over half of all auto title loans become “long-term” debt for borrowers; and
  • Borrowers who renew their auto title loans, and thus, carry them for more than seven months, account for two-thirds of the total auto title industry business.

In connection with the release of its report, the CFPB announced that it is considering new rules to address issues facing consumers in the small dollar marketplace, such as auto title loans, payday loans, and deposit advance products.

To view the CFPB’s report, click here.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

Zane Gilmer is a member of the firm’s litigation practice group.  His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce.  Zane works out of the firm’s Denver office and he can be reached at zane.gilmer@stinson.com or 303.376.8416.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The SEC issued four new Compliance and Disclosure Interpretations on non-GAAP financial measures.  According to the CDIs:

  • Certain adjustments, although not explicitly prohibited, may result in a non-GAAP measure that is misleading. For example, presenting a performance measure that excludes normal, recurring, cash operating expenses necessary to operate a registrant’s business could be misleading.
  • A non-GAAP measure can be misleading if it is presented inconsistently between periods. For example, a non-GAAP measure that adjusts a particular charge or gain in the current period and for which other, similar charges or gains were not also adjusted in prior periods could violate Rule 100(b) of Regulation G unless the change between periods is disclosed and the reasons for it explained. In addition, depending on the significance of the change, it may be necessary to recast prior measures to conform to the current presentation and place the disclosure in the appropriate context.
  • A non-GAAP measure can be misleading if the measure excludes charges, but does not exclude any gains.
  • A non-GAAP performance measure that is adjusted to accelerate revenue recognized ratably over time in accordance with GAAP as though it earned revenue when customers are billed could violate Rule 100(b) of Regulation G.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

Monday May 16, 2016 was the first day JOBS Act Title III crowdfunding could be used. Below are links to some portals and other information.

StartEngine

The StartEngine portal features five offerings, including Graphic Armor, Inc. Graphic Armor is in the business of full-color custom condom printing and is looking to raise $100,000. According to the information on the portal, Graphic Armor believes it is the only company in the world to offer FDA-cleared condoms that feature photo-quality custom print right on the latex.  The Company is not aware of any potential competitors, and notes the time, expense and effort required to secure FDA 510(k) clearance is significant.  You may have not known this, but apparently condoms are regulated by the FDA.

SeedInvest

SeedInvest has two offerings. StartMart Cleveland is a coworking space that fuels the growth of new business. MF Fire is an app-driven, ultra-clean wood stove, engineered for the perfect burn, with a sales pipeline of $3,000,000.

Other

IndieCrowdFunder.com looks to specialize in Hollywood type activities but no offerings are listed on the home page, perhaps some are available if you register.

Likewise, Jumpstart Micro has been approved as a portal and asks you to register to find out more.

CrowdBoarders boasts a minimum investment size of $10.

FINRA has this list of approved portals but not all of the links work, at least for me.

As of the time of this writing, 17 issuers have filed a Form C with the SEC, which is the requisite filing to commence crowdfunding.

We of course are not endorsing any of these offerings or portals.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

Andrew Ceresney, Director, SEC Division of Enforcement, gave his views on the SEC private equity enforcement initiative at a conference.

Mr. Ceresney set forth the various categories of enforcement cases, which at this point are well known. The categories include cases against:

  • Advisers that receive undisclosed fees and expenses;
  • Advisers that impermissibly shift and misallocate expenses; and
  • Advisers that fail to adequately disclose conflicts of interests, including conflicts arising from fee and expense issues.

Perhaps more interesting are Mr. Ceresney’s views regarding a number of arguments advanced by the private equity fund advisers that the SEC has ultimately found unavailing. According to Mr. Ceresney:

“First, some potential defendants have argued that it is unfair to charge advisers for disclosure failures in fund organizational documents that were drafted long before the SEC began its focus on private equity and before many advisers were required to register. But, although private equity fund advisers typically did not register until after Dodd-Frank was enacted, they have always been investment advisers and subject to certain provisions of the Investment Advisers Act. All investment advisers, whether registered or not, are fiduciaries and are subject to the Advisers Act antifraud provisions.

Second, potential defendants have argued that, even if the adviser failed to disclose a conflict of interest, the investors benefited from the services provided by the adviser. While this may be a factor to consider when assessing any potential remedy, it is not a relevant argument for assessing liability. As a fiduciary, an investment adviser is required to disclose all material conflicts of interest so that the client can evaluate the conflict for itself. The fact that a conflicted transaction or practice might arguably benefit the client simply does not relieve an adviser of its duty to inform and obtain consent.

Third, some advisers have pointed to advice they received from counsel, for example in connection with disclosures to investors. The involvement of counsel varies in each case, and assuming the adviser waives the privilege and discloses the advice completely, we will consider this advice in evaluating the appropriateness of an action and the remedies we will seek. However, the adviser is still ultimately responsible for its conduct — including its disclosures of conflicts to its clients — and cannot escape liability simply by pointing to the actions of counsel.”

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

On Friday the SEC released a new set of Compliance and Disclosure Interpretations on Regulation Crowdfunding ahead of the effective date of Regulation Crowdfunding on May 16.  The C&DIs address issuer communications with the public, application of the investment limitations, and balance sheet and financial information disclosures for recently formed issuers. Here are the concepts clarified by the C&DIs:

  • After a Form C has been filed and a crowdfunded offering has commenced, advertisements of the offering outside of the crowdfunding platform are limited to basic factual information about the offering and a link to the platform on which the offering is being conducted.   The limitation on advertisements applies to third party content (such as media articles), too, if the content includes any of the terms of the offering and if the issuer was directly or indirectly involved in any way in the preparation of the content.  The SEC notes that it would be difficult for an issuer to comply with the advertising rules in the context of a media publication.  Translation: no media publications including terms of the offering during a crowdfunding offering.
  • If the issuer has hired a third party to advertise the offering, the communications of that third party with the public outside of the crowdfunding platform must comply with Rule 204(b) to the same extent as if they were communications by the issuer itself.
  • The SEC makes a distinction in the C&DIs between advertisements that include any of the “terms” of a crowdfunded offering (amount of securities offered, nature of the securities, price, and closing date) and those that do not include any of the terms of the offering.  An advertisement that includes any terms of the offering is limited by Rule 204(b) in Regulation Crowdfunding.  In contrast, an advertisement that takes place during a crowdfunded offering but does not include any of the terms of the offering is NOT subject to Rule 204(b), but it remains subject to general securities law prohibitions on public offerings of securities (more on that below).
  • Issuer advertisements of a crowdfunded offering could be in the form of a video, but the content limitations of Rule 204(b) would still apply.
  • The C&DIs clarify that, prior to the filing of a Form C, issuer communications with the public are only restricted by the general requirement that the issuer cannot make an “offer” of securities.  The C&DIs remind us that the SEC interprets the term “offer” very broadly and that statements made in advance of an offering that tend to condition the public mind or raise interest in the issuer constitute an offer.  In other words, prior to filing a Form C issuers (and their officers and directors) need to be careful what they say to the general public and the media regarding the Company in order to avoid inadvertently making an offer.
  • The investment limitations apply to entities as well as natural person investors.  With entities, the limits should be calculated based on the entity’s revenue and net assets as of its most recently completed fiscal year.
  • For a recently formed issuer that has not completed an annual balance sheet cycles, the issuer is permitted to provide a balance sheet as of inception.  The C&DIs also include a table with example inception dates to illustrate the concept.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

 

On May 5, 2016, the Consumer Financial Protection Bureau (CFPB) announced a long-awaited and highly-controversial proposed rule that, if adopted, would prohibit certain financial services companies from banning consumer class actions as part of mandatory pre-dispute arbitration agreements and require companies to report certain arbitration data to the CFPB.  If the proposed rule is finalized, it will likely have a significant impact on the financial industry.

What Does the Proposed Rule Require?

The proposed rule seeks to do two things.  First, to prohibit certain entities and persons (referred to as providers) that offer or provide financial products or services to consumers, from using pre-dispute arbitration agreements to bar consumers from bringing class action lawsuits against the providers in connection with the covered financial products and services.  Second, the proposed rule would require providers that use pre-dispute arbitration agreements to submit certain records and information concerning arbitration to the CFPB, which the CFPB will utilize to determine if further arbitration-related rulemaking is necessary.

What Transactions Would be Covered by the Proposed Rule?

The scope of the proposed rule is very broad in terms of the covered products and services, as well as the entities or persons the rule will or could apply to.  For example, the proposed rule would cover providers engaged in:

  • Extending or regularly participating in decisions concerning consumer credit, engaging primarily in the business of providing referrals or selecting creditors for consumers to obtain such credit, and acquiring, purchasing, selling, or servicing of such credit;
  • Extending or brokering certain automobile leases;
  • Providing services related to debt management or debt settlement;
  • Providing consumer reports directly to consumers;
  • Providing accounts under the Truth in Savings Act and accounts and remittance transfers subject to the Electronic Fund Transfer Act;
  • Transmitting or exchanging funds (except when the transfer is integral to another product or service not covered by the proposed rule) or providing certain other payment processing services, check cashing, check collection, or check guaranty services; and
  • Collecting debt arising from any of the above products or services.

The proposed rule contains a few limited exceptions, such as certain broker-dealers that are already covered by Securities and Exchange Commission rules, and smaller participants that provide financial products or services to 25 or fewer consumers per year.

When Will the Rule Take Effect? 

The proposed rule, if finalized, will take effect sometime in late 2017 or 2018.  Covered providers will not have to comply with the rule until 210 days after the final rule is published in the Federal Register.

What Can (or Should) the Financial Industry Do?

Submit comments on the proposed rule.

As an initial response to the CFPB’s actions, financial institutions must take steps to understand the full scope and ramifications of the proposed rule, and those that will be subject the rule should consider submitting comments to the CFPB either directly or through industry groups, such as bankers’ associations.  Because the rule is so broad and relates to so many types of products, services, and providers, there are many opportunities to provide comments to attempt to limit the scope and impact of the final rule.  Thus, affected institutions should consult with counsel to develop and submit appropriate comments.

The CFPB is accepting comments on the proposed rule for 90 days following the publication of the proposed rule in the Federal Register.

Review affected consumer agreements.

Financial institutions should also undergo a review of their consumer finance contracts to:

  • Understand which of their agreements may be affected by the rule. Specific consideration must be given to whether the institution should amend its consumer agreements that contain mandatory pre-dispute arbitration provisions, by removing those provisions in order to preserve the right to block class actions.
  • Ensure that they are careful to only change those contracts that are subject to this proposed rule. The proposed rule only applies to specific types of products and services.

Financial institution should remember that changes to the agreements do not need to occur yet, as the rule would apply only to agreements entered into after the rule goes into effect (i.e., 210 days after it is published).  Importantly, because agreements in existence prior to the effective date are excluded from the rule, the financial institution should also consider adding arbitration provisions with class action waivers to contracts that do not already contain those provisions and which will be executed prior to the effective date.

Legal challenges to the final rule.

It is likely that there will be litigation challenging the CFPB’s actions.  Although there are numerous possible grounds for challenging the CFPB’s proposed rule, the most likely will be based on whether the CFPB acted within the scope of its authority given to it by the Dodd-Frank Act in proposing and ultimately finalizing this rule.

Specifically, while the Dodd-Frank Act authorizes the CFPB to issue regulations that “may prohibit or impose conditions or limitations on the use of” arbitration agreements, it only permits that action if the CFPB finds “that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers.”  Further, Dodd-Frank expressly requires that the CFPB conduct a study of the use of arbitration agreements between providers and consumers and that any findings made by the CFPB to support a proposed rule concerning arbitration agreements “shall be consistent with the study conducted.”

In March 2015, the CFPB released a report on a study it conducted to evaluate the impact of arbitration provisions on consumers.  The CFPB has relied on that study in justifying the proposals outlined in the current arbitration rule. However, despite the CFPB’s reliance on that study to justify its current rulemaking efforts, the study has been widely criticized as having relied on insufficient data and ignoring certain information that would lead to conclusions not favorable to the CFPB’s current proposed rule.

In addition, there are other unanswered legal questions concerning how the CFPB’s proposed rule comports with the numerous United States Supreme Court cases that uphold class action waivers in arbitration agreements.  Further, just last month, the United States Court of Appeals for the D.C. Circuit heard oral arguments in PHH Corporation, et al. v. The Consumer Financial Protection Bureau, in which one of the issues on appeal relates to the constitutionality of the CFPB.  If the D.C. Circuit rules in favor of PHH and holds that the CFPB is unconstitutional, serious questions remain about the validity of any action taken by the CFPB up to that point, including enacting or enforcing the current proposed rule.

Bottom line, if this proposed rule is passed it will have a significant impact on the financial industry.  The industry must begin to take steps now o prepare for the inevitable impact.

 

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

Zane Gilmer is a member of the firm’s litigation practice group.  His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce.  Zane works out of the firm’s Denver office and he can be reached at zane.gilmer@stinson.com or 303.376.8416.

 

The SEC has approved a proposed PCAOB rule requiring identification of audit engagement partners and certain other audit participants.

Under the PCAOB rules, for each audit report it issues for an issuer, a registered public accounting firm must file with the PCAOB a report on Form AP that includes the following:

  • The name of the engagement partner and Partner ID; and
  • Other information for other audit firms participating in the audit.

Form AP has a basic filing deadline of 35 days after the date the auditor’s report is first included in a document filed with the SEC, with a shorter deadline of 10 days after the auditor’s report is first included in a registration statement under the Securities Act of 1933 (the “Securities Act”) filed with the SEC, such as for an initial public offering. Firms will file Form AP through the PCAOB’s existing web-based Registration, Annual, and Special Reporting system.

The PCAOB rules will be effective as follows:

  • Disclosure of the engagement partner: auditors’ reports issued on or after January 31, 2017; and
  • Disclosure of other accounting firms: auditors’ reports issued on or after June 30, 2017.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The SEC opinion In the Matter of Joseph P. Doxey examines compliance with Rule 506 in an alleged unlawful offering of stock totaling $57,654.

The administrative law judge on summary disposition determined that Mr. Doxey had violated the registration provisions of the Securities Act when he orchestrated unregistered offers and sales of Pure H20 stock to Observation Capital. William J. Daniels was Observation Capital’s sole owner, officer, and director.

On appeal, the SEC noted the definition of an “accredited investor” under Rule 501(a) includes persons “who the issuer reasonably believes comes within” the specified criteria. The Commission noted there is evidence in the record that, when viewed in the light most favorable to Mr. Doxey, suggests that Mr. Doxey could have reasonably believed that Observation Capital had accredited investor status. For example, in the subscription agreements Observation Capital represented and warranted that “it is an ‘accredited investor’ under Rule 501 of Regulation D.” And among the evidence submitted by Doxey was an investor questionnaire apparently completed by Mr. Daniels attesting that he satisfies the criteria of an accredited investor. According to the SEC this is enough to raise a triable issue of fact on whether Doxey reasonably believed Observation Capital was an accredited investor.

The SEC also noted there was insufficient evidence to determine as a matter of law that Mr. Doxey engaged in general solicitation or general advertising. The SEC directed the administrative law judge to consider the nature of the relationship, if any, between Doxey and Daniels prior to the offers and sales in 2008. In Doxey’s reply to the Division’s motion for summary disposition, Doxey referred to two contracts between Pure H20 and Observation Capital that pre-date the period of offers and sales—a contract to pay third party debt and a consulting agreement. The SEC noted those contracts suggest that there may have been a pre-existing substantive relationship between Doxey and Daniels. The SEC stated if such a relationship is found to have existed prior to the offers and sales at issue, that would be a means of demonstrating compliance with the limitation on the manner of offering found in Rule 502(c).

None of the above is particularly startling. What is startling is this had to go all the way to the Commission to direct that black letter law be applied.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The U.S. Department of the Treasury has announced its intention to propose legislation requiring reporting of beneficial ownership at the time a new entity is formed. According to Treasury:

 “The Administration is committed to working with Congress to pass meaningful legislation that would require companies to know and report adequate and accurate beneficial ownership information at the time of a company’s creation, so that the information can be made available to law enforcement.  As part of the legislation outlined today, companies formed within the United States would be required to file beneficial ownership information with the Treasury Department, and face penalties for failure to comply.  The misuse of companies to hide beneficial ownership is a significant weakness in the U.S. anti-money laundering/counter financing of terrorism regime that can only be resolved by Congressional action.  The new draft legislation is an amended version of an Administration Budget proposal, reflecting discussions with Congress, law enforcement entities, and others.”

Treasury also announced proposed regulations to require foreign-owned “disregarded entities,” including foreign-owned single-member limited liability companies, to obtain an employer identification number (EIN) with the IRS. According to Treasury disregarded entities can be used to shield the foreign owners of non-U.S. assets or non-U.S. bank accounts. Once these regulations are finalized, they will allow the IRS to determine whether there is any tax liability, and if so, how much, and to share information with other tax authorities.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.