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In a 2012 article on securities crowdfunding, I warned about the U.S. securities law issues raised by foreign crowdfunding sites selling securities to U.S. investors. I pointed out that “some of those foreign sites also sell to U.S. investors, and some of the investments they sell would almost certainly qualify as securities under U.S. law.”

A recent SEC consent order involving Eureeca Capital shows that the SEC is well aware of the issue and willing to go after foreign sites that sell to U.S. investors.

According to the consent order, Eureeca, based in the Cayman Islands, operates a global crowdfunding platform that connects non-U.S. issuers with investors interested in buying equity securities. Eureeca had a disclaimer on its website that the securities were not being offered to U.S. residents, but it nevertheless allowed U.S. residents to invest in some of the offerings. Eureeca apparently knew these investors were Americans; they provided copies of their passports and proof of U.S. addresses before investing.

The consent order finds that these unregistered sales of securities violated section 5 of the Securities Act and also that Eureeca was acting as an unregistered broker, in violation of section 15 of the Exchange Act. Eureeca…

Received Saturday (edited slightly for publication here):

Dear Colleague,

Please consider submitting your work to the Track “Crowdfunding: a democratic way for financing innovative projects” @ the RnD Management Conference 2015.

The RnD Management Conference 2015 will be held in June 23-26 at Sant’Anna School of Advanced Studies in Pisa.

You can find more information on the Conference Track and on the submission process at the following link: http://www.rnd2015.sssup.it/.

I warmly apologize for cross-posting.

Best regards,

Cristina Rossi Lamastra, PhD

Associate Professor at Politecnico di Milano School of Management

Phone: 0039 0223993972

Fax: 0039 0323992710

Skype: crossi73

Web page: http://www.dig.polimi.it/index.php?id=308&tx_wfqbe_pi1[id]=52

I have previously blogged about Institutional Shareholder Services’ policy survey and noted that a number of business groups, including the Chamber of Commerce, had significant concerns. In case you haven’t read Steve Bainbridge’s posts on the matter, he’s not a fan either. 

Calling the ISS consultation period “a decision in search of a process,” the Chamber released its comment letter to ISS last week, and it cited Bainbridge’s comment letter liberally. Some quotable quotes from the Chamber include:

Under ISS’ revised policy, according to the Consultation, “any single factor that may have previously resulted in a ‘For’ or ‘Against’ recommendation may be mitigated by other positive or negative aspects, respectively.” Of course, there is no delineation of what these “other positive or negative aspects” may be, how they would be weighted, or how they would be applied. This leaves public companies as well as ISS’ clients at sea as to what prompted a determination that previously would have seen ISS oppose more of these proposals. This is a change that would, if enacted, fly in the face of explicit SEC Staff Guidance on the obligations to verify the accuracy and current nature of information utilized in formulating voting recommendations.

The…

Back in 2010, Art Durnev published a short paper, The Real Effects of Political Uncertainty: Elections and Investment Sensitivity to Stock Prices, available here.  The article studies the interaction between national elections and corporate investment.  Today is not a national election — we get two more years before we have to choose our next president — but it’s still seems like an apt day to think about the role of elections on corporate activity.

The most interesting part of the article, to me anyway, is the test of the relationship between political uncertainty and firm performance. As the article explains, 

If prices reflect future profitability of investment projects, investment-to-price sensitivity can be interpreted as a measure of the quality of capital allocation. This is because if capital is  allocated efficiently, capital is withdrawn from sectors with poor prospects and invested in profitable sectors. Thus, if political uncertainty reduces investment efficiency, firm performance is likely to suffer. Consistent with this argument, we show that firms that experience a drop in investment-to-price sensitivity during election years perform worse over the two years following elections.

The conclusion: this signifies that political uncertainty significantly impacts real economic outcomes.  Therefore, “political uncertainty can deteriorate company performance because…

 

 

Miriam Schwartz-Ziv from Michigan State University and Russ Wermers from the University of Maryland have written an interesting article in time for the next proxy season. The abstract is below:

This paper investigates the voting patterns of shareholders on the recently enacted “Say-On-Pay” (SOP) for publicly traded corporations, and the efficacy of vote outcomes on rationalizing executive compensation. We find that small shareholders are more likely than large shareholders to use the non-binding SOP vote to govern their companies: small shareholders are more likely to vote for a more frequent annual SOP vote, and more likely to vote “against” SOP (i.e., to disapprove executive compensation). Further, we find that low support for management in the SOP vote is more likely to be followed by a decrease in excess compensation, and by a more reasonable selection of peer companies for determining compensation, when ownership is more concentrated. Hence, the non-binding SOP vote offers a convenient mechanism for small shareholders to voice their opinions, yet, larger shareholders must be present to compel the Board to take action. Thus, diffuse shareholders are able to coordinate on the SOP vote to employ the threat that large shareholders represent to management.

My co-blogger Stefan Padfield passed along this article from The New York Times Dealbook on the social network Ello.

Ello is a Delaware public benefit corporation. The social enterprise terminology is proving difficult, even for sophisticated authors at the New York Times Dealbook. The article calls Patagonia and Ben & Jerry’s public benefit corporations. Patagonia, however, is a California benefit corporation. I wrote about the differences between public benefit corporations and benefit corporations here. Ben & Jerry’s is a certified B corporation, but, as far as I know, Ben & Jerry’s has not yet made the legal change to convert to any of the social enterprise forms. I wrote about the differences between benefit corporations and certified B corporations here and here. Just as my co-blogger Joshua Fershee remains vigilant at pointing out the differences between LLCs and corporations, so I will remain vigilant on the social enterprise distinctions. 

Besides my nitpicking on the use of social enterprise terminology, there are a few other things I want to say about this article.     

First, Ello raised $5.5 million dollars, which is not that much money in the financial world, but puts Ello in…

I typically teach Corporate Finance as a planning and drafting course to 3L law students in the fall semester each academic year.  (See my part of this transcription for some details.)  This year is no different in that regard.  I really like my Corporate Finance class this fall.  The students all seem pretty motivated (although not in every class meeting) and are asking relevant “how to” questions in class.

I am in the midst of teaching my unit on convertible, exchangeable, and derivative instruments at the moment.  This semester, I am teaching that unit in three 75-minute parts (after teaching one 75-minute class on hybrid instruments).  The first part is an introduction to the instruments themselves.  What are they and how do they operate?  Where are the provisions authorizing them in state corporate law statutes?  What do they look like and what are the key components of the operative (conversion, exchange, or exercise) provisions?  The second part is a dive into the poison pill as an intriguing example.  The third part is a look at common litigation issues affecting parties’ rights under these kinds of instruments (focusing on things like the characterization of transactions not expressly provided for in determining…

Call for Papers

ITEM 6 – Lyon

Microfinance: Coaching, Counting, and Crowding

The Banque Populaire Chair in Microfinance of the Burgundy School of Business (France) organizes the 6th edition of the annual conference “Institutional and Technological Environments of Microfinance” (ITEM) in March 2015 (17, 18, 19) in Lyon, France. This conference was initially programmed in Tunis, Tunisia within the campus of l’École supérieure du commerce de Tunis.

The 6th edition brings together–but is not limited to–three major issues that are shaping the sector of microfinance:  Coaching, Counting, and Crowding.

Coaching in microfinance provides training in business and soft skills (attributes enhancing an individual’s interactions and self-performance) that the poor micro-entrepreneurs rarely have. Increasingly, microfinance academics and practitioners consider building the human capital of micro-entrepreneurs as a critical ingredient of moving out of poverty.

Counting and tracking the microfinance clients and prospects with information technologies not only lessen information asymmetry, but also lower the transaction cost of financial intermediation. Corollary: information technologies can open ways for offering financial services to the poor as a normal way of doing and extending normal business and accelerate their social integration. 

Crowding, based on Web 2.0 technologies, enables direct interactions between millions…

Alibaba dominated the September business press coverage with its record-breaking IPO last month, and news of its stock price, trading at a 30% premium, continues to dominate coverage.  I have been using the headline-hogging IPO in my corporations class to discuss raising capital, which I am sure many of you are doing as well.  Here are a few creative uses for the class-friendly headlines:

  • I used coverage of the IPO and its short-lived halo effect on other tech IPO’s as a companion to the E-bay stock spinning case (taught under director fiduciary duties).  

As we move into securities next week,

Please add to the list of uses in the comments section if you have any new ideas or suggestions.

-Anne Tucker

For the second time, I have assigned my BA students to write their own shareholder proposals so that they can better understand the mechanics and the substance behind Rule 14-a8. As samples, I provided a link to over 500 proposals for the 2014 proxy season. We also went through the Apple Proxy Statement as a way to review corporate governance, the roles of the committees, and some other concepts we had discussed. As I reviewed the proposals this morning, I noticed that the student proposals varied widely with most relating to human rights, genetically modified food, environmental protection, online privacy, and other social factors. A few related to cumulative voting, split of the chair and CEO, poison pills, political spending, pay ratio, equity plans, and other executive compensation factors.

After they take their midterm next week, I will show them how well these proposals tend to do in the real world. Environmental, social, and governance factors (political spending and lobbying are included) constituted almost 42% of proposals, up from 36% in 2013, according to Equilar. Of note, 45% of proposals calling for a declassified board passed, with an average of 89% support, while only two proposals for the separation…