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

The Government Accountability Office, or GAO, has released an annual report required by the Dodd-Frank Act. GAO interviewed community banks, credit unions, and industry associations.  Those interviewed cited an increase in compliance burdens associated with rules that Dodd-Frank required to be implemented.  This included increases in staff, training, and time allocation for regulatory compliance and updates to compliance systems. Some of these industry officials also reported a decline in specific business activities, such as loans that are not qualified mortgages, due to fear of litigation or not being able to sell those loans to secondary markets.

According to the report the results of the surveys suggested that there have been moderate to minimal initial reductions in the availability of credit among those responding to the various surveys and regulatory data to date have not confirmed a negative impact on mortgage lending. However, these results do not necessarily rule out significant effects or the possibility that effects may arise in the future.

GAO stated the full impact of the Dodd-Frank Act remains uncertain because many of its rules have yet to be implemented and insufficient time has passed to evaluate others.

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 December 28, 2015, the Consumer Financial Protection Bureau (CFPB) announced that it filed a proposed consent order in federal court in the Northern District of Georgia that, if approved by the court, will resolve a lawsuit against Frederick J. Hanna & Associates, a Georgia-based debt collection law firm, and its three principal law partners.

In July 2014, the CFPB filed a lawsuit against the firm and its principal law partners alleging violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on deceptive practices as well as the Fair Debt Collection Practices Act (FDCPA).  Specifically, the CFPB alleged that the firm and its principal law partners:

  • filed lawsuits against consumers that were purportedly reviewed and signed by attorneys when, in fact, there was no meaningful involvement by attorneys; and
  • filed sworn affidavits from clients attesting to details about consumer debts that the clients could not have possible known about, in order to support its lawsuits.

The proposed consent order would:

  • prohibit the law firm and its principal partners from filing or threatening to file lawsuits to enforce debts, unless they have specific documents and information demonstrating that the debt is accurate and enforceable;
  • prohibit the law firm and its principal partners from filing or threatening to file lawsuits unless attorneys have reviewed specific documentation related to the consumers’ debt;
  • prohibit the law firm and its principal partners from using affidavits as evidence to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s knowledge of the facts and documents attached to the affidavit; and
  • require the law firm and the three principal partners to jointly pay a $3.1 million civil penalty.

In addition, in separate and previous enforcement actions, the CFPB ordered three of the law firm’s clients—JPMorgan Chase, Portfolio Recovery Associates, and Encore Capital Group—to overhaul their debt collection practices and to refund millions to harmed consumers.

These enforcement actions are just the latest of many recent debt collection related actions taken by the CFPB.  The CFPB has made clear that addressing illegal debt collection practices is one of its top enforcement priorities.  Indeed, the law firm and the three principal partners lost an earlier motion to dismiss based on the argument that the CFPB allegedly lacked the authority to regulate the lawyers.  As such, it is important for all participants in the debt collection industry to review their policies and procedures and ensure that they are in compliance with relevant law, including the Dodd-Frank Act, the FDCPA, the Fair Credit Reporting Act, and applicable CFPB regulations, guidance, and enforcement actions.

In addition, as it relates specifically to debt collection law firms and attorneys, it is important to remember that although the CFPB’s authority to regulate lawyers and law firms (specifically the practice of law) is limited by the Dodd-Frank Act, as evidenced by this latest enforcement action, the CFPB does have relatively broad authority to regulate lawyers and law firms, especially those engaged in debt collection activities.  Thus, it is important for debt collection lawyers and law firms that utilize non lawyer staff to assist in debt collection efforts to ensure that both the lawyers and staff members are well trained in proper debt collection practices.

You can view the CFPB complaint here: http://files.consumerfinance.gov/f/201407_cfpb_complaint_hanna.pdf.

You can view the proposed consent order here: http://files.consumerfinance.gov/f/201512_cfpb_proposed-stipulated-final-judgment-and-order-hanna-frederick-j-hanna.pdf.

You can view the court’s earlier order related to the law firm’s motion to dismiss in which the court addressed the issue of the practice of law discussed above: http://files.consumerfinance.gov/f/201512_cfpb_order-frederick-j-hanna.pdf.

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 Delaware Court of Chancery recently explained the calculation of a put price for units in PECO Logistics, LLC v. Walnut Investment Partners, L.P.

The LLC Agreement provided as following methodology for calculating the Put Price;

“Total Equity Value” means the aggregate proceeds which would be received by the Unitholders if: (i) all of the assets of the Company were sold at their fair market value to an unrelated third-party on arm’s-length terms, with neither the seller nor the buyer being under compulsion to buy or sell such assets; (ii) the Company satisfied and paid in full all of its obligations and liabilities (including all Taxes, costs and expenses incurred in connection with such transaction and any amounts reserved by the Board with respect to any contingent or other liabilities); and (iii) such net sale proceeds were then distributed in accordance with the distribution provisions of Section 4.1(b), all as determined by the Board.

For the purpose of calculating the Total Equity Value when the Put Right has been exercised, the LLC Agreement provided that the value of the assets is subject to upper and lower limits based on certain earnings multiples calculated as of year-end 2013 (the “EBITDA Collar”):

“solely for purposes of determining the Put Price, clause (i) of the definition of “Total Equity Value” (i) may not be less than the product of (A) 6.5 multiplied by (B) the Company’s “EBITDA less Maintenance Capex” for the 12-month period ending on (1) December 31, 2013 with respect to the Rollover Put Units . . . and (ii) may not be more than the product of (A) 7.5 multiplied by (B) the Company’s “EBITDA less Maintenance Capex” for the 12-month period ending on (1) December 31, 2013 with respect to the Rollover Put Units . . .”

In addition, the LLC Agreement provided that the Company and the Rollover Investors “shall be bound by the determination of the Valuation Firm . . . with respect to the Put Price as established by the Valuation Firm . . . pursuant to this Section 9.2(b) and the terms of this Agreement.”

The defendants exercised their Put Right and the Company’s Board of Managers chose Duff & Phelps as the Valuation Firm. The defendants disagreed with the Valuation Firm’s report and declined to transfer their units to the Company.  The Company commenced a declaratory judgement action, and the defendants counterclaimed for breach of the implied covenant of good faith and fair dealing.  The action was decided on a judgment on the pleadings.

The defendants argued the pleadings raised the following issues of material fact that precluded entry of judgment in PECO’s favor as a matter of law:

  • Whether the parties agreed to modify the LLC Agreement to afford the defendants the right to participate in the valuation process and to object to the valuation firm’s determination.
  • Whether certain provisions of the LLC Agreement governing the valuation methodology were ambiguous.

The Court found the LLC Agreement required PECO to select a nationally recognized valuation firm to determine the fair market value of the preferred units in accordance with the valuation methodology set forth in the LLC Agreement. The LLC Agreement did not afford the defendants any right to participate in the selection of the valuation firm or in the valuation process itself after the valuation firm has been selected. Nor did the LLC Agreement afford the defendants any right to reject or challenge the valuation firm’s determination.

The defendants argued that the Company agreed to modify the LLC Agreement when the defendants exercised their put right to afford them the right to participate in the valuation process (e.g., to provide information to and confer with the valuation firm about its determination) and to object to the valuation firm’s determination. The Court stated the first hurdle to making this argument is Section 14.2 of the LLC Agreement, which provided that the LLC Agreement “may be amended, modified, or waived with the written consent of the Board.”

The defendants relied on well-settled Delaware law that contract provisions deeming oral modifications unenforceable can be waived by a course of conduct. Specifically, they argued that the LLC Agreement was modified by virtue of the inclusion of a reservation of rights in the defendant’s put notice, which PECO accepted by its conduct when it proceeded with the valuation without expressing any objection to the reservation of rights. This court found this argument was unavailing as a matter of law because there was no consideration to support the asserted modification. According to the Court all the defendants did was “reserve” preexisting rights they purported to (but did not) have with respect to the determination of value without giving up anything in return. In sum, there was no benefit to PECO, or detriment to the defendants, that served as the consideration necessary to support the alleged modification.

The Court also rejected the defendant’s argument that the provisions of LLC Agreement governing the valuation methodology were ambiguous. The Court said when parties to a contract agree to be bound by a contractually established valuation methodology, this Court will respect their right to order their affairs as they wish and refrain from second-guessing the substantive determination of value.  The fact that Duff & Phelps was required to make certain judgment calls in its application of the prescribed valuation methodology is irrelevant to deciding the motion because the LLC Agreement unambiguously granted the valuation firm the sole authority to make the value determination, and unambiguously stated that such determination is binding on all parties.

As to the counterclaim regarding breach of the implied covenant of good faith and fair dealing, the Court noted it is “best understood as a way of implying terms in the agreement.” Terms will only be implied “when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected.” Moreover, “[t]he implied covenant only applies to developments that could not be anticipated, not developments that the parties simply failed to consider . . . .”

Applying the foregoing law, the Court found a decision to select one of two admittedly reasonable options available under the LLC Agreement does not, by definition, constitute arbitrary or unreasonable conduct that has the effect of preventing a party to a contract from receiving the fruits of the bargain that was struck—especially when that decision was made by Duff & Phelps, an independent third party.

In addition, the defendants argued it was “unreasonable and arbitrary” for PECO to “pile on debt,” which had the effect of reducing the valuation. The Court rejected the argument noting the counterclaim is devoid of any facts from which it would be reasonable to infer that the debt in question did not serve a legitimate business purpose and was incurred for the bad-faith purpose of diminishing the valuation of the put units.

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 December 22, 2015, the Consumer Financial Protection Bureau (CFPB) released its latest Monthly Complaint Report for November 2015, which provides an overview of three-month trends in consumer complaints.  This Monthly Report also highlights consumer complaints related to money transfers and consumer complaints from Georgia.

Money Transfer Complaint Spotlight

As of December 1, 2015, the CFPB has handled approximately 5,100 money transfer complaints, related to both domestic and international transfers.  Among other things, those complaints relate to the following:

  • 42 percent of the complaints involve consumers complaining about being victimized by fraud;
  • problems related to transferring money, including the amount of money transmitted being less than expected and unexpected delays in transferring funds;
  • issues related to customer service, including long hold times or being provided inadequate or confusing information; and
  • problems resolving errors with transfers.

The most complained about companies were MoneyGram, Western Union, PayPal, and JPMorgan Chase, which together accounted for approximately 80 percent of all money transfer complaints.

National Complaint Overview

As of December 1, 2015, the CFPB has handled 770,100 complaints across all consumer financial products and services regulated by the CFPB.  The Monthly Complaint Report includes the following statistics for October 2015 about those complaints:

  • debt collection and mortgages were the most complained about products, representing nearly half of all complaints;
  • complaints related to prepaid products rose 215 percent in a year-to-year and month-to-month comparison;
  • complaints related to payday loans showed the greatest decrease in a year-to-year and month-to-month comparison;
  • the District of Columbia and Delaware had the highest complaint volume per capita; and
  • the most complained about companies were Equifax, TransUnion, and Experian.

Georgia Complaints

In addition to providing national consumer financial complaint trends, the Monthly Complaint Report also highlights complaints originating from the Atlanta, Georgia metro area.  Of the 770,100 complaints that have been submitted to the CFPB, 31,300 have originated from Georgia.  Consumer complaints submitted by Georgia consumers revealed the following:

  • 33 percent of the complaints related to mortgages, making up the largest percentage of overall complaints;
  • Georgia consumer complaints largely mirror national trends, but Georgia consumers complain about mortgages at a slightly higher rate;
  • Georgia consumer complained most about Equifax, Bank of America, Experian, TransUnion, and Wells Fargo.

CFPB’s Consumer Complaint Database

In June 2012, the CFPB launched its Consumer Complaint Database, which permits consumers to submit complaints about consumer financial products and services.  Once the CFPB receives a complaint it forwards the complaint to the relevant company for a response.  Companies generally have 15 days to respond to the complaint, unless an extension is secured in the meantime.  The consumer complaint and company’s response, if one is provided, is published on the public facing Consumer Complaint Database, which can be accessed and viewed by the public.  The information provided on the database can be valuable to not only consumers, but also to companies.  For example, it provides a valuable tool for companies to understand how consumers view the quality of the company’s products and services.  It also provides companies with an opportunity to evaluate whether complaint trends suggest that problems exist with certain products and services that need to be addressed to avoid or minimize regulatory action.  As such, although the Consumer Complaint Database is not generally viewed favorably by financial industry companies, it can provide valuable information.

For more information on the CFPB’s consumer complaint process go here: https://www.stinson.com/Resources/PDF_Files/Navigating_CFPBs_Consumer_Complaint_Process.aspx.

You can view the CFPB’s Monthly Complaint Report here:  http://files.consumerfinance.gov/f/201512_cfpb_monthly-complaint-report-vol-6.pdf.

You can view the CFPB’s Consumer Complaint Database here: http://www.consumerfinance.gov/complaintdatabase/.

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.

 

 

Nasdaq has filed a rule proposal with the SEC to permit it to exercise discretion to grant an extension to regain compliance before delisting a company that fails to hold an annual meeting. In determining whether to grant a company an extension to comply with the annual meeting requirement, Nasdaq will consider the likelihood that the company would be able to hold an annual meeting within the exception period, the company’s past compliance history, the reasons for the failure to timely hold an annual meeting, corporate events that may occur within the exception period, the company’s general financial status, and the company’s disclosures to the market. This review will be based on information provided by a variety of sources, which may include the company, its audit committee, its outside auditors, the staff of the SEC and any other regulatory body. The proposed rule change will limit the length of an extension granted by staff, upon review of the plan to regain compliance, to no more than 180 calendar days from the deadline to hold the annual meeting (i.e., one year after the end of the Company’s fiscal year).

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 has issued a release soliciting comment on the regulation of transfer agents. After some initial background, it’s divided into two parts.  The first is an advance notice of proposed rulemaking, seeking comment on specific regulations and potential changes. The second part is a concept release, soliciting comment on broader topics.

The release begins with the history of transfer agents and the development of regulations. For instance, it answers the mystical question of where DTC got the name for its nominee, “Cede & Co.”  It’s short for “certificate depository.”  See footnote 87 on page 31.  It also explains the odd term “regular way” which sometimes works its way into documents. That apparently is just a reference to normal T+3 settlement.  See footnote 262 on page 74.

Importantly, the release signals the SEC’s intent to impose enhanced obligations on transfer agents in the transfer of restricted securities. To combat microcap fraud, the SEC intends to propose rules:

  • prohibiting any registered transfer agent or any of its officers, directors, or employees from directly or indirectly taking any action to facilitate a transfer of securities if such person knows or has reason to know that an illegal distribution of securities would occur in connection with such transfer;
  • prohibiting any registered transfer agent or any of its officers, directors, or employees from making any materially false statements or omissions or engaging in any other fraudulent activity in connection with the transfer agent’s performance of its duties and obligations under the Exchange Act and the rules promulgated thereunder; and
  • requiring each registered transfer agent to adopt policies and procedures reasonably designed to achieve compliance with applicable securities laws and applicable rules and regulations thereunder, and to designate and specifically identify to the Commission on Form TA-1 one or more principals to serve as chief compliance officer.

With respect to Regulation Crowdfunding, the SEC solicits comments on the following topics:

  • What services, if any, do commenters anticipate transfer agents providing for crowdfunding issuers?
  • How do commenters anticipate transfer agents will comply with their recordkeeping, safeguarding, and other requirements in the context of crowdfunding securities?
  • Does the entry of transfer agents into the crowdfunding space pose new or additional risks for the prompt and accurate settlement of securities transactions?
  • Transfer agents have traditionally assessed fees on a per shareholder basis. Do commenters believe transfer agents are likely to impose a per shareholder fee in connection with crowdfunding issuances? If so, is a per-shareholder fee appropriate? If not, what other kinds of fees are likely to be charged, and would they be appropriate?

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 recently enacted omnibus spending bill, referred to as the Consolidated Appropriations Act, 2016, provides the SEC may not use funds made available under the Act to “finalize, issue, or implement” rules regarding disclosures of political spending.

The ink had hardly dried on the Act, averting a government shutdown, when 28 senators and 66 members of Congress sent a letter to the SEC explaining that the agency is free to work on a proposed rule to require disclosure of corporate political spending. It’s OK to propose a rule, you understand, so long as you do not finalize, issue or implement it.  The letter is supported by an opinion from John Coates, professor of law and economics at Harvard Law School.

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.

In the first case of its kind, the CFTC accused Kraft Food Groups, Inc. and former parent Mondelez Global LLC with manipulation pursuant to Section 6(c)(1) of the Commodities Exchange Act and related Regulation 180.1. Regulation 180.1 makes it unlawful to recklessly employ manipulative devices.  Most would have though enforcement would have been directed at high frequency traders and not actual users of commodities like Kraft.

The CFTC alleged Kraft purchased $90 million of wheat futures which, according to the CFTC, was far in excess of Kraft’s commercial needs. The CFTC alleged Kraft desired the market to believe that it would take delivery of a portion of the wheat, which would lower the cash price of the wheat.

Kraft moved to dismiss the claim, but the United States District Court for the Northern District of Illinois Eastern Division ruled in favor of the CFTC. The Court accepted the defendants’ argument that the Section 6(c)(1) claim that  must satisfy the heightened pleading standard of Federal Rule of Civil Procedure 9(b) because it concerns the violation of an anti-fraud rule.

The defendants then argued that the “CFTC is unable to identify” and allege with the “particularity required for a fraud charge, what ‘manipulative or deceptive device or contrivance’ Kraft allegedly employed.” The Court disagreed, and found that that the CFTC adequately pled each of the following:

  • the manipulative acts that were performed;
  • which defendants performed them;
  • when the manipulative acts were performed; and
  • what effect the scheme had on the market for the commodities at issue.

The Court found the CFTC adequately pled manipulation in the first prong by alleging that:

  • Kraft took a huge wheat futures position;
  • that it did not intend to use in production;
  • but instead intended that the position would signal Kraft’s demand for wheat in the relevant time period;
  • in a way that would mislead others in the market into thinking that Kraft would take delivery of its futures position and not buy cash wheat;
  • which was intended to, and in fact did, cause cash wheat prices to decrease and the price for futures to increase.

The defendants argued that the complaint is still deficient in that it does not offer any facts showing “how” Kraft allegedly misled the market as to its intended use of wheat futures. According to the Court the law imposes no such pleading requirement. The Court rejected Kraft’s argument that its massive long position could have signaled many things, and that its market position strategy, therefore, cannot qualify as adequately deceptive or manipulative. The Court stated this might prove true upon further discovery, but the Court was confined at this stage to the complaint itself.  Because the complaint adequately alleged that Kraft fraudulently took its futures position to signal intent to take delivery of the December 2011 wheat from its futures contracts, and that the market was misled by that signal, which ultimately resulted in the prices at issue being based not upon market forces, but rather upon false signals, the Court found that CFTC had adequately pled manipulative conduct.

The Court next addressed scienter. Looking to precedent under securities and commodities laws, the Court found the CFTC must plead facts showing that Kraft’s conduct was either reckless or intentional; and this standard can be met by allegations of conduct showing “an extreme departure from the standards of ordinary care” which “presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.  Among other things the Court found an adequate pleading of scienter because of emails referred to in the complaint.

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 issued a staff report on the accredited investor definition. The Dodd-Frank Wall Street Reform and Consumer Protection Act directs the Commission to review the accredited investor definition as it relates to natural persons every four years to determine whether the definition should be modified or adjusted.  Staff from the Divisions of Corporation Finance and Economic and Risk Analysis prepared the report in connection with the first review of the definition.

The report examines the history of the accredited investor definition and considers comments on the definition received from a variety of sources, including public commenters, the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies. The report considers alternative approaches to defining “accredited investor,” provides staff recommendations for potential updates and modifications to the existing definition and analyzes the impact potential approaches may have on the pool of accredited investors.

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 is permitting EDGAR test filings of Regulation Crowdfunding offerings.

Under new SEC rules that take effect on May 16, 2016, companies will be permitted to offer and sell securities through crowdfunding. Companies seeking to conduct a crowdfunding offering using the new rules must file the required disclosures about the offering on a new Form C on EDGAR, the SEC’s electronic document filing system.  Filers are now able to submit test filings on the new form.  The test filings will be accepted until February 29, 2016, and are intended to help prospective issuers become more familiar with the mechanics of the filing process in advance of a crowdfunding offering.

During this testing period, filers should identify their Form C filings as “test” filings. “Live” filings are not permitted, and the system will reject such filings, until the rules are effective.  Test filings will not be evaluated for compliance with the rules and will not be reviewed by SEC staff or available for public viewing.  As is the case with any document submitted on EDGAR, testers should not submit confidential or personally identifiable information in the test filings.

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.