Thanks to Paul Caron and the BLPB editors for allowing me to join the blog as a contributing editor. 

I will post from time to time on my scholarly interests,
which include legal issues involved in corporate governance, mergers &
acquisitions, entrepreneurship, and social enterprise.  Currently, as Stefan mentioned in his kind introduction, most of my
time has been devoted to social enterprise law, especially
benefit corporation law. 

For my first few posts, however, I am going to write about
landing a job teaching law in a business school and how working at a business
school differs from working at a law school. 
This fall, I moved from a law professor position at Regent University
School of Law to a business school position at Belmont University.  The move has been a good one, and though my
appointment is in the business school, I will also be teaching Business
Associations in Belmont’s law school, starting next year. 

With the entry and lateral markets so weak at
law schools across the country, given
the 45% drop in LSAT test takers since 2009, I imagine some readers are
considering business school positions. 

Finding a legal studies position in a business school can…

Title III of the JOBS Act, which contains the new crowdfunding exemption, is not a particularly well-drafted statute. It was put together rather quickly in the Senate as a substitute for the crowdfunding exemption that passed the House and never went through a formal committee markup. The resulting exemption contains a number of ambiguities and loopholes. I am happy to report that the SEC’s proposed rules to implement the crowdfunding exemption clear up the major statutory problems.

1. $1 Million Offering Limit Includes Only Crowdfunded Offerings

Section 4(a)(6)(A) of the Securities Act provides that the exemption is available only if

the aggregate amount sold to all investors by the issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, is not more than $1,000,000.

The “including” clause makes it unclear if only securities sold pursuant to the crowdfunding exemption are included, or if securities sold pursuant to other exemptions during the 12-month period must also be subtracted from the $1 million limit. I argued (here, at p. 200) that only crowdfunded securities should count against the limit, but conceded that this statutory language is…

You know crowdfunding’s getting a lot of media attention when even Al Jazeera covers it.

I blogged yesterday about the SEC’s release of proposed rules to implement the JOBS Act crowdfunding exemption.

Both the JOBS Act and the proposed rules require that crowdfunding offerings be made through either registered securities brokers or registered funding portals. “Funding portal” is a new category of regulated entity created by the JOBS Act specifically for exempted crowdfunded offerings. The Act requires non-broker funding portals to belong to a national securities association subject to rules “written specifically for registered funding portals.” (See section 3(h)(2) of the Exchange Act, as amended by the JOBS Act.) Because of that requirement, non-broker funding portals cannot engage in crowdfunding until those rules are in place.

Somewhat overlooked in the hoopla surrounding the SEC rules proposal was the release of proposed rules by the Financial Industry Regulatory Authority (FINRA) to regulate funding portals. The FINRA notice is here and the proposed rules are here.

I hope the SEC and FINRA are careful to coordinate final adoption of the crowdfunding rules and the FINRA rules. Funding portals cannot engage in crowdfunding until they have registered under the FINRA rules. If the crowdfunding rules go into effect before funding portals can register with FINRA, brokers…

The SEC has finally released its long-awaited proposal for rules to implement the crowdfunding exemption in the JOBS Act. It’s available here. The 585-page proposal is substantial, even by SEC standards.

The statutory deadline for the SEC to adopt these rules was Dec. 31, 2012, but almost no one with a sophisticated knowledge of securities law, including me, expected the SEC to meet that deadline. I wish I had bet with some of the people in the crowdfunding community who naively expected that deadline to be met; I could have cleaned up.

There’s a 90-day comment period. (Giving people 90 days to comment on a 585-page proposal that it took 18 months to draft is chutzpah.) Because of that, adoption before the end of this year is impossible. [I corrected this. The original post said 60 days.]

I am happy to report that SEC staff members have read my two articles on crowdfunding and the JOBS Act crowdfunding exemption (available here and here). Those articles are cited several times in the release. I will be interesting to see if the staff actually acted on any of my recommendations or accepted any of my interpretations in drafting the rule.

For those of you who have seen the classic film
The Wizard of Oz, you may remember the scene where Dorothy, the tin man, and the scarecrow made their way through the Spooky Forest chanting “lions and
tigers and bears, oh my.”  They feared what could come next on their
journey. Some in the business community have a similar fear of what could come
next with the rise of shareholder activism, increasing but unclear regulation,
and more demands from particular investors.

On October 16th,  I had the privilege of serving on a
panel with the corporate secretary of JP Morgan Chase, an executive of the
AFL-CIO, and the fund controller for Vanguard during an informational session on
corporate governance and proxy trends. The US Chamber of Commerce Center for
Capital Markets Competitiveness sponsored the event.

The
morning started with New Jersey Congressman Scott Garrett setting the tone for
the day by praising SEC Chair Mary Jo White for her recent statements promoting
agency independence and discretion, and decrying disclosure overload.  He expressed his opposition to what he
perceived to be a growing push to “hijack” the SEC disclosure regime to push “environmental and social causes that are immaterial to investors.”…

In the last 30 years, it has become incredibly important whether or not investors in securities offerings are accredited investors. An issuer can sell securities to accredited investors without registration (and without alternative disclosure requirements) under both Rule 506 and new Rule 506(c) of Regulation D.Accredited investor status also matters in determining whether an issuer is a reporting company under the Exchange Act. A company must register under the Exchange Act only if it has 2,000 record holders of a class of equity security or “500 persons who are not accredited investors.” Exchange Act sec. 12(g)(1)(A).

But the SEC may have taken a wrong turn when it defined the term to make individuals “accredited investors” based solely on the absolute level of their net worth or annual income.

The Section 4(a)(2) Exemption

Section 4(a)(2) [formerly, section 4(2)] of the Securities Act of 1933 exempts from registration “transactions by an issuer not involving any public offering.”

The leading case interpreting that statutory exemption is SEC v. Ralston Purina Co., 346 U.S. 119 (1953). In that case, the Supreme Court indicated that the availability of the exemption turns on “the need of the offerees for the protections afforded by registration.&rdquo…