Posts Tagged ‘Securities and Exchange Commission (SEC)’
The Jumpstart Our Business Startups Act or JOBS Act, intended to encourage funding of United States small businesses by easing various securities regulations, was signed into law by President Obama on April 5, 2012.
On April 5, 2012, the Jumpstart Our Business Startups Act (“JOBS Act”) was signed into law. The fundamental change that it will have on companies is their ability to raise capital through a private placement under Rule 506 of Regulation D of the Securities Act of 1933, as amended (“Rule 506 Offering”). The JOBS Act, among other things, will eliminate the prohibitions under the U.S. federal securities laws against general advertising or general solicitation in connection with a Rule 506 Offering; provided that all purchases are made to accredited investors. The elimination of the general advertising and general solicitation restrictions could have a significant impact on a company’s ability to raise capital because it allows companies to reach a more diverse group and larger number of potential investors through their marketing efforts. The enactment of the JOBS Act directed the U.S. Securities and Exchange Commission (“SEC”) to revise Rule 506 of Regulation D within 90 days of its enactment, or by July 4, 2012. The current rules are still applicable to Rule 506 Offerings until the SEC amends Rule 506 of Regulation D.
Currently, under Rule 506 of Regulation D, companies are prohibited from soliciting investors through general advertisements or general solicitations, which makes it difficult for startups and small companies to raise capital since, as is often the case, they do not have enough contacts who are accredited investors that have the financial capability to invest in their company. With the implementation of the JOBS Act, a company will have the ability to tap a larger pool of investors than they originally had access to since they will now be allowed to solicit investors through general advertisements and general solicitations. This should open up access to more funding opportunities then companies previously experienced. The one caveat is that all investors must be accredited investors as such term is defined under Rule 501(a) of Regulation D (“Accredited Investor”).
An Accredited Investor is generally someone who has enough knowledge and business experience and acumen that they do not need to be afforded the full protection of the securities laws. Since this was a difficult standard to interpret, the SEC enacted Rule 501(a) to clarify the meaning of an Accredited Investor. There are eight (8) different categories of investors under the definition of an Accredited Investor, the most widely used by startup and small companies is:
- 501(a)(6) any natural person whose individual net worth, or jointly with their spouse, exceeds $1 million at the time of purchase, excluding the value of such person’s primary residence; or
- 501(a)(7) any natural person with income exceeding $200,000, or joint income with a spouse exceeding $300,000, for the two most recent years with a reasonable expectation of achieving the same income level in the current year.
A company can avail itself of the elimination of the advertising prohibitions in a Rule 506 Offering by taking “reasonable steps to verify that purchasers of the securities are accredited investors”. The meaning of this standard is unclear as of now, but hopes are that the SEC will clarify its meaning when it revises Rule 506 of Regulation D.
Once the SEC amends Rule 506 of Regulation D, companies will be able to conduct private placements through the facilitation of general advertisements and general solicitations as long as they reasonably verify that the securities are sold to Accredited Investors only.
By Aaron Messing
I will be speaking at SES New York 2012 conference about emerging legal issues in search engine optimization and online behavioral advertising. The panel will discuss Legal Considerations for Search & Social in Regulated Industries:
Search in Regulated Industries
Legal Considerations for Search & Social in Regulated Industries
Programmed by: Chris Boggs
Since FDA letters to pharmaceutical companies began arriving in 2009, and with constantly increasing scrutiny towards online marketing, many regulated industries have been forced to look for ways to modify their legal terms for marketing and partnering with agencies and other 3rd party vendors. This session will address the following:
- Legal rules for regulated industries such as Healthcare/Pharmaceutical, Financial Services, and B2B, B2G
- Interpretations and discussion around how Internet Marketing laws are incorporated into campaign planning and execution
- Can a pharmaceutical company comfortably solicit inbound links in support of SEO?
- Should Financial Services companies be limited from using terms such as “best rates?
Looks like it will be a great panel. I will post my slideshow after the presentation.
(Updated on 3.22.12 to add presentation below)
“Putting Privacy First” was originally published in the August 2011 edition of TechNews.
Many businesses view legal compliance as a necessary evil and an obstacle to profits. Thus, compliance is often made a mere formality. Dealing with the complex privacy and data protection rules and regulations is often viewed no differently – be it industry-specific rules such as HIPAA (healthcare), age-specific rules such as COPPA (online marketing to minors), agency-specific rules (i.e., SEC or FTC rules), the rules and regulations of each individual state, or even the various foreign laws such as the Data Protection Act (applies to businesses which conduct any business with many European nations). However counterintuitive it may be for some, forward-thinking businesses do not view privacy and data protection compliance as a necessary drag on revenue, but instead, they use it as a marketing tool to distinguish themselves from the competition and grab an increased market share.
As privacy and data breach issues continue to make front page news on a near-daily basis, and with the U.S. Congress working on sweeping new privacy laws, such compliance concerns are increasing in magnitude and importance. The reality is that whether you are aware or not, the various privacy and data protection laws impact and govern the operations of almost all businesses. For example, if you can answer “Yes” to any of these questions, there are privacy and data protection laws that govern your operations: Do you accept credit cards for payment? Do you gather any personal information about your customers, patients, employees, members or vendors? Do you electronically store any data on your computers or servers? Do you sell or market on the Internet? Do you conduct any business with, or market your business to, any person or entity located in another country? Are you in the financial industry? Do you seek to conduct any credit checks on potential employees or customers? The above only addresses a tiny fraction of the activities which subject you to regulation.
So what can and should a business do to not only survive, but actually thrive in this ever-changing regulatory environment? The answer is quite simple – be compliant and market the advantages of your privacy policies.
As acknowledged by the Washington Post on July 18 in “Tech IPO’s Grapple With Privacy,” Google did not have to deal with online privacy in 2004 as such a concept did not exist. Times have certainly changed. On the same day as the Washington Post article, the New York Times reported in an article entitled “Privacy Isn’t Dead. Just Ask Google+” that “Rather than focus on new snazzy features — although it does offer several — Google has chosen to learn from its own mistakes, and Facebook’s. Google decided to make privacy the No. 1 feature of its new service.” Google+ represents a significant attempt by Google to break Facebook’s near stranglehold on social media. Given Google’s past success, it is no surprise that Google has attacked privacy concerns head-on, and turned consumers’ concern for privacy into a marketing bonanza. Such a strategy has been used successfully in the automobile industry for years by companies such as Volvo, Subaru and Mercedes; each of whom turned consumer concern about automobile safety into a marketing opportunity to distinguish themselves from the competition by marketing their superior safety features.
The obvious next question is how does a business use consumers’ privacy concerns as a marketing tool? The answer is to acknowledge your customers’ concerns, explain how and why your business cares about the customer more than your competitors, and that you will keep them safe. To accomplish this goal, you must first determine which regulatory scheme(s) govern the operation of your business. Second, you must determine the best method for compliance with the applicable law, and whether it makes business sense to implement privacy and data security policies which go beyond the minimum required by law. Third, you should examine how, if at all, your competitors address and promote their privacy obligations. Fourth, you must develop a strategic plan to promote to your customers the superiority of your privacy and data security policies. Importantly, you must not only inform your customers of what your privacy and data security policies are, but how such policies help and protect your customers. For example, Mercedes realized that people were scared of getting injured in car crashes, so their advertisements often explained how Mercedes technology would help avoid accidents (i.e., anti-lock brakes) and how they would protect you if you did crash (i.e., airbags and crumple zones). The same applies to privacy and data protection concerns. In the end, by carefully planning out and implementing each of the above four-steps, you will avoid regulatory problems while simultaneously gaining a leg up on the competition.