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Archive for 2015

More Clarification on How To Raise Money Without Registration: SEC Issues Compliance and Disclosure Interpretations on Exempt Offerings (Part 4)

November 12, 2015

Intrastate Exemption.

We briefly touched on the concept of intrastate exemption in our previous blog series on crowdfunding (available here). As the name suggests, intrastate offerings are transactions that do not involve interstate commerce (hence the exemption, as being outside of the scope of the Securities Act of 1933). This is important because, to qualify for the intrastate offering exemption under Rule 147, the transaction must be “genuinely local in character,” i.e., local financing by local industries carried out through local investment.… Read the rest

An Example of How Securities Laws Can Be Broader than Most People Think: SEC Warns Investors of Fantasy Stock Trading Websites (Part 1)

November 10, 2015

On June 17, 2015, the Securities and Exchange Commission (“SEC”) issued an investor alert to warn investors about fantasy stock trading and other similar websites. For a full text of the alert, click here.

Although most people think that terms like “swap,” “security-based swap,” and “derivative” include only complicated financial instruments used by sophisticated financial institutions, the SEC explains that these terms are defined broadly and include any agreement, contract, or transaction whose value is based upon – or “derivative” of – the value or performance of some other financial product, event, or characteristic.… Read the rest

LLC Owners, If You Owe Someone Money, Your Ownership of an LLC Might Not Be Protected: When It Comes to Single-Member LLCs, Charging Order May Not Be the Exclusive Remedy (Part 4)

November 7, 2015

Real Life Stories (Cases) on the Issue: In re Modanlo (Delaware).

In Modanlo, Modanlo was the debtor and held a 100% ownership interest in NYSI, a Delaware single-member LLC.[1] Subsequently, the trustee filed a bankruptcy petition for NYSI and sought the court’s authorization to permit him to act as the manager of NYSI, among other things.[2] Modanlo objected, arguing that neither he nor the trustee as his successor had any authority to cause NYSI to do anything, including placing the LLC into a bankruptcy, once he filed his bankruptcy petition (causing him to cease being a member of NYSI and causing dissolution of NYSI).… Read the rest

More Clarification on How To Raise Money Without Registration: SEC Issues Compliance and Disclosure Interpretations on Exempt Offerings (Part 3)

November 5, 2015

General Solicitation.

As we discussed in our previous blog series on exempt offerings (available here), absence of general solicitation is a condition to be met in most exempt offerings, with limited exceptions, such as offering under Rule 506(c).  This is important because, to qualify for an exemption from registration, an issuer must meet all the requirements of the exemption.  General solicitation includes, without limitation, any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio,[1] as well as other uses of publicly available media, such as unrestricted Web sites.… Read the rest

LLC Owners, If You Owe Someone Money, Your Ownership of an LLC Might Not Be Protected: When It Comes to Single-Member LLCs, Charging Order May Not Be the Exclusive Remedy (Part 3)

November 3, 2015

Real Life Stories (Cases) on the Issue: In re A-Z Electronics, LLC (Idaho).

A-Z Electronics, another bankruptcy case involving a single-member LLC, follows the reasoning in Albright to reach the conclusion that a debtor-member’s bankruptcy filing assigns his or her entire membership interest, economic and non-economic, to the bankruptcy trustee where there are no other members. In that case, Ryan, along with his wife, filed bankruptcy and listed A-Z Electronics, LLC (the “LLC”) as an asset with a value of “$0.00.”[1] Subsequently, the LLC also filed bankruptcy, signed by Ryan as the sole and managing member of the entity.… Read the rest

More Clarification on How To Raise Money Without Registration: SEC Issues Compliance and Disclosure Interpretations on Exempt Offerings (Part 2)

October 31, 2015

Verification of Accredited Investor Status.

The next set of questions are related to the requirement under Rule 506(c) that an issuer take reasonable steps to verify, and form a reasonable belief regarding, the accredited investor status of a purchaser at the time of the sale of securities.[1]  This is important because, to qualify for an exemption from registration, an issuer must meet all the terms and conditions of the exemption, and verification of accredited investor status is a requirement under Rule 506(c).… Read the rest

SEC Votes To Adopt Federal Crowdfunding Rules

October 30, 2015

In our previous blog series on “Crowdfunding: Is It Right for My Business?”, we discussed Title III of the Jumpstart Our Business Startups Act (JOBS Act), popularly known as the “CROWDFUND Act (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012),” which would exempt crowdfunded securities from the federal registration requirement.

On October 30, 2015, the Securities and Exchange Commission (“SEC”) finally voted to adopt final rules related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the JOBS Act. … Read the rest

LLC Owners, If You Owe Someone Money, Your Ownership of an LLC Might Not Be Protected: When It Comes to Single-Member LLCs, Charging Order May Not Be the Exclusive Remedy (Part 2)

October 29, 2015

Real Life Stories (Cases) on the Issue: In re Albright (Colorado).

In Albright, Albright was the debtor in bankruptcy and the sole member of a Colorado LLC, which owned certain real property.[1]  The bankruptcy trustee contended that, because the debtor was the sole member and manager of the LLC at the time she filed bankruptcy, the trustee now controlled the LLC and could cause the LLC to sell the real property and distribute the net sales proceeds to the bankruptcy estate.… Read the rest

All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.