Publication
International arbitration report
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
On November 2, 2020, in an effort to harmonize and modernize the exempt offering framework under the Securities Act of 1933 (the Securities Act), the Securities and Exchange Commission (SEC) adopted, by a vote of 3 to 2, a final rule entitled "Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets."
These new amendments, along with the recently expanded definition of "accredited investor" (see our legal update, US SEC adopts amendments to expand scope of accredited investor definition), are intended to greatly increase access to both capital raising for issuers and capital investment for investors through private and other offerings that are exempt from registration under the Securities Act.
Offerings of securities in the US must either be registered with the SEC or qualify for an exemption from the registration requirements of the Securities Act. Emerging companies, entrepreneurs and small businesses typically take advantage of the exempt offering framework to raise capital without having to navigate the complex, time consuming and often expensive registration process. At the same time, as SEC Chairman Jay Clayton points out, under the current framework, "prospective investors must navigate a system of multiple exemptions and safe harbors, each with different requirements". The amendments seek to address the gaps and complexities, while continuing to enhance established investor protections.
The amendments generally:
The amendments will be effective 60 days after publication in the Federal Registration, except for the temporary Regulation Crowdfunding provisions, which will be effective immediately upon publication in the Federal Register.
The amendments increase certain offering amount thresholds and revise eligibility criteria for Regulation A, Regulation Crowdfunding and Rule 504 of Regulation D.
The amendments relax the offering communication rules to:
The amendments create a new offering communication rule to provide that certain "demo day" communications will not be deemed general solicitation or general advertising provided certain conditions are met. An issuer will not be deemed to have engaged in general solicitation if the communications are made in connection with a seminar or meeting sponsored by a college, university, or other institution of higher education, a state or local government, a nonprofit organization, or an angel investor group, incubator or accelerator. Under the new rule, "angel investor group" means a group: (A) of accredited investors; (B) that holds regular meetings and has written processes and procedures for making investment decisions, either individually or among the membership of the group as a whole; and (C) is neither associated nor affiliated with brokers, dealers or investment advisers.
The sponsor of the "demo day" event may not:
Further, advertising for the event cannot reference any specific offering of securities by the issuer, and there are also certain limitations on the information that may be conveyed at such an event and on virtual "demo day" events. If the "demo day" is virtual, participation must be limited to:
The amendments create new rules that permit investors to aggregate their investments with the use of certain special purpose crowdfunding vehicles (crowdfunding vehicles) to make investments in an issuer raising capital under Regulation Crowdfunding. The new rules exclude such crowdfunding vehicles from the definition of "investment company" under the Investment Company Act of 1940.
The amendments also impose certain eligibility restrictions on the ability to use Regulation A for issuers that are delinquent in their reporting obligations under the Securities and Exchange Act of 1934 (Exchange Act). For example, an issuer would not be permitted to conduct a Regulation A offering if the issuer failed to file the reports required by Section 13 or 15(d) of the Exchange Act in the two years preceding the filing of an offering statement.
Historically, the determination of whether two securities offerings in close proximity to one another should be "integrated" as really one integrated offering has been a convoluted process highly dependent on a set of "five factors" without much clarity which of those factors carried the greatest, if any, weight. The amendments establish a new integration framework with a general principle that looks to the facts and circumstances surrounding two or more offerings and focuses the analysis on whether each particular offering either complies with the registration requirements of the Securities Act or an exemption for registration.
Additionally, the amendments provide four non-exclusive safe harbors from integration as follows:
Among other things, the amendments provide greater clarity to certain requirements for Regulation A offerings, particularly with respect to required disclosures. For example, required disclosures to non-accredited investors would be "scaled".
Also, the amendments harmonize the bad actor disqualification provisions in Regulation D, Regulation A and Regulation Crowdfunding by adopting the same look-back period for disqualifying events. For example, a disqualifying event that occurs during an offering, not just prior to filing, would disqualify the "bad actor" from participating in the offering.
The amendments also add a new item to the non-exclusive list of verification methods in Rule 506(c). An investor for which the issuer previously took reasonable steps to verify accredited investor status remains an accredited investor as of the time of a subsequent sale if the investor provides a written representation to that effect and the issue is not aware of contrary information. This method is subject to a five-year time limit.
Further, the amendments change the financial information that must be provided to non-accredited investors in a Rule 506(b) private offering to align with the less burdensome financial information that issuers must provide to investors in Regulation A offerings. For example, an issuer would no longer have to provide audited financial statements in a Regulation D offering of less than US$20 million.
Publication
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
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The Second Circuit recently held that federal common law protections of sovereign immunity did not preclude prosecution of a state-owned foreign corporation.
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Facing the fast-growing development of AI across the globe, particularly Generative AI (GenAI), the G7 competition authorities and policymakers (Canada, France, Germany, Japan, Italy, the UK and the US) and the European Commission met in Italy on 3-4 October 2024 to discuss the main competition challenges raised by these new technologies in digital markets.
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