From Big Law to Solo and Beyond
My CLE year, that is. With about a week to go, I had 0.5 hours remaining for my outstanding required CLE credits. One Supreme Court Securities Law Litigation Update a buffet lunch of pot roast at the Dallas Bar Association, and I’m 0.5 credits ahead for 2014!
I will be posting about CLE resources for the solo practitioner soon. It is another of those adjustments from big firm life that must be considered.
When you work in the startup world, you see it over and over again. A company has founders, a product and, maybe, some angel or friends and family investors. It is time to get that product out the door and some cash in your pocket.
Many founders believe that their wonderful and innovative idea combined with their passion will explode into sales. This is not always the case, particularly when your target market is other businesses.
Being an inventor, administrator, financier or (even) attorney is not the same thing as being a salesman. Selling is a talent and a skill. Not everyone is born with the ability to sell. Not everyone has taken the time to develop this particular skill. However, if your business depends on personal sales calls to buyers, whether they are end users or intermediaries, you may want to consider whether you should hire a dedicated salesperson.
Generally, when the product has been tested and is ready for entry into the market, it is a good time for the startup to have a committed salesperson on board. Preferably that person would know the industry and show up with a ready-made contact list, as ‘Rolodex’ is so-old economy. However, even a person who has sales experience and can understand the product will be preferable to an inventor or founder who may not have the right experience to turn an opportunity into revenue.
The SEC is taking notice of private oil and gas offerings and has increased its scrutiny of these deals. They have noted the recent increase in fraud cases for these deals at the federal and state levels. Thus, the SEC has released an Investor Alert for Private Oil and Gas Offerings. And the first thing they recommend to investors approached to invest?
“Is the person recommending the investment registered? Most people offering you securities must be registered as a broker with the SEC and must be a member of the Financial Industry Regulatory Authority, or FINRA.”
The SEC cautions that being registered is not a seal of approval and that there may be conflicts of interest between the broker-dealer and the issuer.
In a general alert regarding the oil and gas industry, it is not surprising to find the SEC focused on the broker-dealer issue. Many advisors (including this writer) have been approached to sign off on an offering sales arrangement without a licensed broker-dealer with the explanation that:
Unfortunately for the would-be commission-eers, the SEC and state securities authorities do not share that analysis.
As the SEC said in the alert:
“If someone who is not registered solicits your investment, that person may be violating the law. One exception from broker registration is available to employees of the company offering the securities and who engage in strictly limited sales activities. If you aren’t consulting a registered broker or adviser, you should consider doing so. A registered broker or adviser that is familiar with the oil and gas industry and not connected to the offering can help you analyze the investment. Most importantly, working with a registered broker or investment adviser affords you certain legal protections.”
The SEC then illustrated benefits of using a licensed professional to assist in the investment decision:
Keep in mind that if the investment opportunity is an outright fraud, the written materials may look legitimate and every question you have about the opportunity may be answered to your satisfaction, but that doesn’t make any of it true. It is important to conduct your own independent research. One good way to do that may be to engage an investment professional specializing in oil and gas.”
It should be instructive to practitioners that in the course of a general industry investor alert, the SEC chose to highlight the risks of dealing with unlicensed broker-dealers. They are still clearly focused on this issue. Although some bad actors promote these deals, hoping to stay under the radar is a bad strategy for the promoter, issuer and investor.
Waze, a community-based traffic and navigation app whose users share real-time traffic and road info, announced it was being acquired by Google.
Google confirmed the acquisition and noted that the Waze team will remain in Israel and operate separately for now.
The purchase price was reportedly in excess of $1 billion, rivaling Yahoo!’s purchase of Tumblr for mega-deals for private tech companies this year. Deal terms were not announced, but a even a cash deal would not be a problem for Google as it had over $15 billion in cash at March 31, 2013.
Waze has been the subject of acquisition rumors for months, with many of tech’s biggest names as purported acquirors, including Apple and Facebook. This deal demonstrates again that while “social” is okay for a business strategy, it is “mobile” that is driving growth.
In this previous post, I discussed the federal government’s newly aggressive enforcement of insider trading laws while federal government employees seemed to be providing tips to investors about pending government decisions that impact share prices of health care companies. In the corporate world, this is known as “tipping” material non-public information and has severe consequences. In the government world, “Congress and the executive branch — along with the reporters and lobbyists who track them — are accustomed to a relatively unfettered exchange of information, compared with the more regulated environment on Wall Street.”
This reminded me that in April 2013, Congress passed a bill striking down a key provision of the federal law prohibiting insider trading by members of Congress and their staff and high-level executive branch employees. It is amazing that this was not the law until 2012. However, the STOCK Act provided that securities transactions would be reported within 45 days and filed electronically so people could actually see it.
Congress voted to kill the broad disclosure provisions without hearings or public notice due to laughable national security and personal safety concerns. According to a report on the matter:
“Virtually all the cybersecurity, national security, and law enforcement experts interviewed during this study noted that making this information available in this fashion fundamentally transforms the ability (and the likelihood) of others — individuals, organizations, nation-states — to exploit that information for criminal, intelligence, and other purposes.”
In addition, several groups representing the interests of federal employees have criticized the law.
Let us not forget that directors, officers and holders of 10% or more of a public company must disclose transactions in that company’s stock:
I guess those people don’t have the same security concerns as federal employees.
There has been much ink spilled about the SEC’s recent aggressive moves on insider trading allegations, from Rajat Gupta and Goldman Sachs to its pursuit of Steven Cohen of SAC Capital fame to calls for scrutiny of Rule 10b5-1 Plans.
However, lost in the shuffle to punish people who made more money than other people in the stock market is the recent news about federal employees engaging in conduct that is far worse.
The Washington Post (who hasn’t objected to the behavior of federal employees since January 20, 2009) today noted that hundreds of federal employees were told of important Medicare decisions weeks in advance of public release, which was also just before trading of shares in firms impacted by the decision spiked. The public shouldn’t be alarmed because “agency officials said they take care to safeguard information and carefully vet which employees have access to it. Employees are educated regularly about he need for confidentiality and CMS documents are often stamped with warnings about early disclosure.”
Sen. Charles Grassley said that this should sound an alarm and should result in better controls to avoid unfair access to information.
Great. More rules that won’t be followed by people who will not be punished for engaging in behavior that will cause the government to destroy the lives of non-public sector employees. So the answer is to talk about more rules for making illegal behavior super-illegal. That should solve everything.
and sure enough, Jenkens & Gilchrist is mentioned. It is such a shame that this is how that firm will be remembered.
In a no-action letter, the SEC stated its view that officers and directors may participate in an exchange offer during a blackout period. Pfizer’s request for SEC interpretive relief is here.
Background
Pfizer owns a bunch of shares of Class B supervoting common stock of Zoetis, which recently went public. The companies expect to convert these shares into plain vanilla shares of Class A common stock. Pfizer wants to give its shareholders the chance to own Zoetis shares through an exchange offer without forcing them to take the Zoetis shares, such as through a spin-off. To get the Zoetis shares, the shareholder would have to affirmatively participate in the exchange offer by giving up a certain number of Pfizer shares.
The Problem
Regulation BTR prohibits an officer or director from certain transactions with the company’s stock during a blackout period, a period when the ability to sell to engage in transactions in an individual account plan is suspended by the company or a fiduciary of the plan. Pfizer said it looks like the exchange offer will run headlong into a blackout period. This would prevent Pfizer officers and directors from participating.
Exemptions from Reg BTR include M&A deals and divestitures, but exchange offers are not necessarily included. Pfizer thinks they should be saying that Reg BTR purpose to equalize the treatment of corporate executives and rank-and-file employees and align the interests of directors and executive officers would be served through a transaction conducted pursuant to the SEC’s tender offer rules.
The Result
The SEC agreed, noting that: