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I mentioned back in October that I spoke in Munich on Regulating Investment Crowdfunding: Small Business Capital Formation and Investor Protection. I discussed how crowdfunding should be regulated, using the U.S. and German regulations as examples.

If you’re interested, that talk is now available here. I expect this to be the top-rated Christmas video on iTunes.

If you want to know more about how Germany regulates crowdfunding, I strongly suggest this article: Lars Klöhn, Lars Hornuf, and Tobias Schilling, The Regulation of Crowdfunding in the German Small Investor Protection Act: Content, Consequences, Critique, Suggestions (June 2, 2015).

A few days ago, co-blogger Steve Bradford posted on law professor complaints about grading under the title Warning: Law Professor Whine Season.  OK.  I typically am one of those whiners.  But today, rather than noting that grading is the only part of the semester I actually need to be paid for (and all that yada yada), I want to briefly extoll one virtue of exam season:  the positive things one sees in students as they consciously and appropriately struggle to synthesize the material in a 14-week jam-packed semester.

My Business Associations final exam was administered on Tuesday.  Like many other law professors, I gave my students sample questions (with the answers), held a review session, and responded to questions posted to the discussion board on our class course management site.  Sometimes, I dread any and all of that post-class madness.  This year, I admit that there were few of the thinly veiled (and, by me, expressly discouraged and disdained) “is this on the exam?” or “please re-teach this part of the course . . .” types of questions or requests in any of the forums that I offered for post-class review and learning.  That was a relief.

The students’ final work product for my Corporate Finance planning and drafting seminar was due Monday.  I met with a number of students in the course about that drafting assignment and about the predecessor project in the final weeks before each was due.  I watched them work through issues and begin to make decisions, uncomfortable as they might be in doing so, that solve real client problems.  Satisfying times . . . .

In fact, there have been a number of moments over the past week in which I was exceedingly proud of the learning that had gone on and was continuing to go on during the post-class exam-and-project-preparation phase of the semester.  I  offer a few examples here to illustrate my point.  They come from both my Business Associations course, for which students take a comprehensive written final examination, and my Corporate Finance planning and drafting seminar, for which students solve a corporate finance problem through planning and drafting and write a review of a fellow student’s planning and drafting project.

Divestment campaigns have been a popular form of corporate activism.  With divestment pensions, institutions, endowments and funds withdraw investments from companies to encourage and promote certain social/political behaviors and policies. 

Erik Hendey in his article Does Divestment Work (in the Harvard Political Review) recounted recent divestment campaigns including: 

“sweatshop labor, use of landmines, and tobacco advertising. But undoubtedly the best known example of divestment occurred in the 1970s and ’80s in response to the apartheid regime of South Africa. Retirement funds, mutual funds, and investment institutions across the country sold off the stocks of companies that did business in South Africa.”

A current divestment campaign is focused on guns.  In the wake of the San Bernardino, California mass shooting, this issue is poised to gain momentum.  The widespread investment in gun manufacturers will also make this campaign relevant to many investors. Andrew Ross Sorkin at the NYT DealBook writes in Guns in Your 401(k)? The Push to Divest Grows:

“If you own any of the broad index funds or even a target-date retirement fund, you’ve got a stake in the gun industry. Investments in gun makers, at least over the past five years, have performed well. Shares of Smith & Wesson

…

Please accept my apologies for not posting this notice sooner.  I received the call for papers a few weeks ago and meant to post it then.  But I now see that the deadline for abstract submissions is Monday!  Mea culpa.  Please feel free to post a comment here or contact me by email for more information if you want to submit.  I have a more full-blown version of the call for papers that I can send by email to those who are interested in more information.  (I omitted here prior conference locations as well as the names and affiliations of members of the conference academic and practice review boards and organizing committee.) 

I have participated in this conference for the past two years.  While there are few law academics in attendance, I have found the work of our international colleagues from the business side of the aisle to be both very informative to my work and interesting in many other respects.  This conference also has enabled me to forge new relationships that have positively impacted my scholarship.

Call for Papers
7th Conference on Innovative Trends Emerging in Microfinance (ITEM-7)
Pumping up Innovations In and Around Microfinance
(Microfinance, Crowdfunding and Community Development Finance)…

One final post on the SEC’s proposed changes to Rule 147 and I promise I’m finished—for now. Today’s topic is the effect the proposed changes will have on state crowdfunding exemptions. If the SEC adopts the proposed changes to Rule 147, many state legislatures will have to (or at least want to) amend their state crowdfunding legislation.

As I explained in my earlier posts here and here, the SEC has proposed amendments to Rule 147, currently a safe harbor for the intrastate offering exemption in section 3(a)(11) of the Securities Act. If the proposed amendments are adopted, Rule 147 would become a stand-alone exemption rather than a safe harbor for section 3(a)(11). There would no longer be a safe harbor for intrastate offerings.

That creates some issues for the states. Many states have adopted state registration exemptions for crowdfunded securities offerings that piggyback on the federal intrastate offering exemption. That makes sense, because, if the offering isn’t also exempted at the federal level, the state crowdfunding exemption is practically worthless. (An offering pursuant to the federal crowdfunding exemption is automatically exempted from state registration requirements, but these state crowdfunding exemptions provide an alternative way to sell securities through crowdfunding.)…

My recent article:  Locked In: The Competitive Disadvantage of Citizen Shareholders, appears in The Yale Law Journal’s Forum.  In this article I examine the exit remedy for unhappy indirect investors as articulated by Professors John Morley and Quinn Curtis in their 2010 article, Taking Exit Rights Seriously.  Their argument was that the rational apathy of indirect investors combined with a fundamental difference between ownership of stock in an operating company and a share of a mutual fund.  A mutual fund redeems an investor’s fund share by cashing that investor out at the current trading price of the fund, the net asset value (NAV). An investor in an operating company (a direct shareholder) exits her investment by selling her share certificate in the company to another buyer at the trading price of that stock, which theoretically takes into account the future value of the company. The difference between redemption with the fund and sale to a third party makes exit in a mutual fund the superior solution over litigation or proxy contests, they argue, in all circumstances. It is a compelling argument for many indirect investors, but not all.

In my short piece, I highlight how exit remedies are…

The Department of Labor issued new interpretive guidelines for pension investments governed by ERISA.  A thorny issue has been to what extent can ERISA fiduciaries invest in environmental, social and governance-focused (ESG) investments?  The DOL previously issued several guiding statements on this topic, the most recent one in 2008, IB 2001-01, and the acceptance of such investment has been lukewarm. The DOL previously cautioned that such investments were permissible if all other things (like risk and return) are equal.  In other words, ESG factors could be a tiebreaker but couldn’t be a stand alone consideration. 

What was the consequence of this tepid reception for ESG investments?  Over $8.4 trillion in defined benefit and defined contribution plans covered by ERISA have been kept out of ESG investments, where non-ERISA investments in the space have exploded from “$202 billion in 2007 to $4.3 trillion in 2014.” 

In an effort to correct the misperceptions that have followed publication of IB 2008-01, the Department announced that it is withdrawing IB 2008-01 and is replacing it with IB 2015-01. 

The new guidance admits that previous interpretations may have

“unduly discouraged fiduciaries from considering ETIs and ESG factors. In particular, the Department is

…

Here’s something everyone who has ever taken Securities Regulation should know: Section 3(a)(11) of the Securities Act, the intrastate offering exemption, has a safe harbor, Securities Act Rule 147.

As Lee Corso would say, “Not so fast, my friend.”  The SEC is proposing to overturn that longstanding wisdom. If the SEC’s proposed changes to Rule 147 are adopted,Rule 147 would no longer be tied to section 3(a)(11) and section 3(a)(11) would no longer have a safe harbor. The intrastate nature of Rule 147 would be preserved, but the proposed changes would be adopted under the SEC’s general exemptive authority in section 28 of the Securities Act.

Here are the most significant changes that the SEC has proposed:

Tied to State Regulation

The premise of section 3(a)(11) and its Rule 147 safe harbor is to relegate purely intrastate offerings to state regulation. But there’s currently nothing in Rule 147 to enforce that premise; federal exemption does not depend on state regulation of the offering.

The SEC proposal would expressly tie the federal Rule 147 exemption to state regulation. An offering would qualify for the federal exemption only if it was (1) registered at the state level or (2) sold pursuant…

This hit my mailbox this morning.  If the report is correct, we’ll know in a few days whether we have a path to unregistered, broad-based securities crowdfunding in the United States.  More as news is reported . . . .

[Additional information:  Based on the link to the SEC’s notice of meeting in Steve Bradford’s comment to this post, it also appears that the SEC is considering amendments to Rules 147 (intrastate offerings) and 504 (limited offerings under Regulation D of up to $1,000,000).]