On January 26, 2022, the SEC released a rulemaking proposal intended to enhance investor protections and cybersecurity for alternative trading systems that trade treasuries and other government securities.[1] The 650 page proposal contains over 220 separate requests for comments (with many requests containing multiple sub-parts). The comment requests address wide-ranging issues which affect trading venues of all types. Most relevant for the blockchain industry is that the SEC proposal seeks to regulate “communication protocol systems.”[2]
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Reminder to Perform Annual ISO/ESPP Reporting in January 2022
As discussed in our December 16, 2010 blog article, the IRS issued final regulations in 2009 under Section 6039 of the Internal Revenue Code (the “Code”) that require employers to annually furnish each employee who exercised incentive stock options (“ISOs”) or sold or otherwise transferred shares acquired under an employee stock purchase plan (“ESPP”) during a year with a detailed information statement by January 31 of the following year. In addition, employers must generally file an information return with the IRS by February 28 of the following year, or by March 31 for employers filing electronically. These due dates…
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2020, 2021 and the EC/VC Industry – Review of the Past Year and Predictions for the Current One
In the beginning of February 2020, COVID-19 seemed to have little to no impact on venture capital investing in the United States. Fast forward a few weeks later: concerns quickly spread over the entire industry about the effects of the COVID-19 pandemic on venture investing, its impact on startup companies and the U.S. economy in general. Emerging growth companies instantly went into “conserve cash mode” and applied for PPP loans.
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SEC Adopts Rule Amendments Aimed at Expanding Access to Capital
On November 2, 2020, the Securities and Exchange Commission adopted amendments intended to ease the rules for certain exempt offerings. These changes include increasing the annual cap on equity crowdfunding from $1.07 million to $5 million, raising the annual cap on Reg A+ offerings from $50% million to $75 million, raising the maximum offering amount for Rule 504 of Regulation D from $5 million to $10 million, and expanding the “test-the-waters” accommodation to Regulation Crowdfunding issuers.
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Investments in Emerging Growth Companies Post-COVID-19
As the COVID-19 pandemic spread from Asia to the rest of the world at the beginning of 2020, global venture capital (VC) funding dropped dramatically—by about 20% since December 2019 according to Startup Genome.[1] While the longer-term effects of the pandemic on startups’ ability to raise money cannot be fully grasped yet, it is likely that this downward trend will continue. Furthermore, though many venture rounds in Q1 2020 benefitted from optimistic beliefs in a V-shaped economic recovery, deals that get done over the next several quarters may reflect pressures resulting from what most now predict to be…
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Issues Regarding SEC Proposal to Expand Private Offering Exemptions
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), was promoted as a new piece of legislation creating groundbreaking additional pathways to funding for companies, which was especially highlighted by the 2008 financial crisis. Two provisions in the JOBS Act, created “Regulation” crowdfunding and “Reg A+” offerings, were particularly focused on early stage and emerging growth companies’ financing needs.
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With the SEC, Cooperation is Key
As an expensive “slap on the wrist,” the Securities and Exchange Commission (“SEC” or the “Commission”) recently concluded that approximately $12.7 million worth of funds raised in a 2017 Initial Coin Offering (“ICO”) by Gladius Network LLC (“Gladius”) were part of an unregistered securities offering, and all proceeds must be returned to investors. However, the penalty to Gladius for their regulatory violations was zero.
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Recent Development in Regulatory Enforcement of Digital Securities
In a flurry of activity and confluence of developments, the SEC, FINRA and a Brooklyn federal judge have commenced actions and made rulings that continue to define the regulatory framework and obligations surrounding the sale and trading of digital securities, whether they are labeled as cryptocurrencies or tokens.
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SEC Expands the Definition of “Smaller Reporting Company”
This article was originally posted to the Corporate and Securities Law Blog on July 12, 2018.
On June 28, 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “smaller reporting company” which expand the number of companies that qualify as smaller reporting companies and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The amendments to the definition of “smaller reporting company” will be effective on September 10, 2018.
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Monumental Shift in Sales Tax Collection Requirements for Remote Retailers
On June 21, 2018, the United States Supreme Court issued its decision in South Dakota v. Wayfair, Inc., overturning a 26 year-old decision holding that a retailer must have a physical presence in a state in order to have a sales or use tax collection obligation. The Wayfair decision has an immediate and major impact on retailers of all sizes, but also leaves open numerous unanswered questions.
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New Law Requires SEC to Expand Regulation A+ To Exchange Act Reporting Companies
On May 24, 2018, President Donald J. Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”). The Act, which primarily focuses on rolling back certain regulatory provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, also contained a significant change in the law for companies looking to undertake securities offerings in reliance on the revamped Regulation A (commonly referred to as “Regulation A+”) under the Securities Act of 1933.
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New York’s AG Enters the Cryptocurrency Ring as Federal, State Authorities Find Regulatory Footing
On April 17, 2018, the New York State Attorney General (“NYAG”) sent a “Virtual Markets Integrity Initiative Questionnaire” to 13 companies operating virtual currency trading platforms. The questionnaire consists of 34 questions covering a number of topics, including ownership and control, operation and fees, trading policies and procedures, outages and other suspensions of trading, internal controls, and privacy and money laundering.
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Crypto-Crime: The SEC and DOJ Go After BitFunder and Its BitFounder
Taking further steps into the world of cryptocurrency, two entities of the federal government recently took legal action against BitFunder, a now-defunct Bitcoin exchange, and its founder, Jon Montroll. The Securities and Exchange Commission filed civil charges against BitFunder and Montroll, and the U.S. Attorney’s Office in Manhattan brought criminal charges of perjury and obstruction of justice against Montroll, who was arrested and taken into custody. BitFunder was an exchange that, among other things, empowered its customers to create and trade Bitcoin denominated shares of enterprises. The numerous allegations and charges against the defendants include:…
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Patent Strategies for Cryptocurrencies and Blockchain Technology
Cryptocurrencies and blockchain technology are rapidly emerging as disruptive technologies. As has happened with many new technologies, particularly disruptive ones, a patent arms race is occurring. The number of patents being filed for these technologies is rapidly increasing.
The number of published applications shows roughly a tenfold increase over the number of issued patents.
Despite this increase in patent filing activity, many companies are unaware of what aspects of this technology can be patented and many myths and misconceptions exist. In addition to the usual misconceptions about patents (detailed below), the open source aspect of many blockchain-based inventions leads to…
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Seeking foreign investors for your tech startup? Congress says, “not so fast.”
The U.S. Congress is currently considering legislation that would tap the brakes on foreign direct investment in the United States, particularly on investments in sensitive industries like artificial intelligence, robotics, and semiconductors. We know: you’re saying we already have that in the form of the Committee on Foreign Investment in the United States (known as CFIUS).
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When Does Software Become Securities?
The SEC Munchee Order and Chairman’s Statement
On December 11, 2017, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (“Order”) against Munchee, Inc.’s (“Munchee”) $15 million Initial Coin Offering (“ICO”). The SEC determined that the tokens were investment contracts, and thus securities, primarily because a purchaser of the tokens would have had a reasonable expectation of obtaining a future profit based upon Munchee’s efforts, including Munchee revising its app and creating an “ecosystem” using the proceeds from the sale of the tokens. On the second day of sales of MUN tokens, the company was contacted by SEC…
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