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Lee D. Neumann

Independent U.S. lawyer based in Paris

Member of the New York and Paris Bars

Key Developments in U.S. Securities Law

JOBS Act

Signed into law on April 5, 2012, the JOBS Act makes some important changes in U.S. securities laws and regulations to facilitate capital raising in the United States, particularly by small and medium-size companies.

For non-U.S. entities, the most significant change is likely to be the possibility of making private placements in the United States without any limitations on general advertising or solicitation, as described immediately below.

"POPP"s: publicly offered private placements

For many years, most smaller non-U.S. companies have not considered raising capital by offering securities to U.S. investors. U.S. regulations made it difficult to reach investors in private placements, and the legal risks of violation were high.

All that has now changed, thanks to the SEC’s new Rule 506(c), which entered into effect on September 23, 2013.

U.S. and non-U.S. companies that wish to raise funds from U.S. investors may now publicly advertise their capital raising to any audience and through any means. No SEC registration is required, and there are no specific documentary requirements or SEC review. The single requirement is that only “accredited investors”, as defined by the SEC, may purchase the securities. “Accredited investors” include both physical and legal persons that satisfy certain standards of income or net worth. According to the SEC, almost one household in 10 in the United States would qualify as an accredited investor, so there are literally millions of potential investors who can now be reached by general advertising in a non-SEC registered offering.

In the first six months, 700 POPPs were carried out and raised $11 billion of new capital for SMBs, or $15 million on average per offering.

If your company or investment fund is considering raising capital, please free to contact me to discuss how you may benefit from the significant new opportunities for obtaining funding in the United States.

Crowdfunding

The JOBS Act instructs the SEC to adopt rules to permit crowdfunding. However, the JOBS Act states that only US companies may engage in crowdfunding. For this and other reasons (for example, the SEC has not yet adopted the rules required by the JOBS Act), crowdfunding as proposed by the JOBS Act currently offers little attraction for non-US companies.

However, in March 2013, the SEC issued two “no action” letters - one to AngelList and one to FundersClub – which authorize them to operate crowdfunding-type internet sites. Early stage companies selected by the site operators may post information about themselves to attract angel investors and venture capital. Access to the sites would be limited to “accredited investors”, which include both physical and legal persons satisfying certain SEC standards regarding their financial worth. The site operators would not receive compensation in the event the posted companies are funded, but only in the event the investors’ interests are liquidated with a sufficient upside.

From the perspective of early stage non-US companies, the question remains as to whether the site operators will be willing to include them as potential investment targets, and whether US investors would be willing to invest in them. I currently have non-US clients who are investigating these possibilities, and I will keep you posted as to any significant progress.

Recent Articles and Presentations
“French PME: now you can access U.S. capital markets”, C’EST A VOUS, le magazine du MEDEF Paris, n° 32, juillet 2014, pp 80-81.

“Crowdfunding en France et POPP aux Etats-Unis”, avec Laurent Beauvoit, finance & gestion, n° 319, mai 2014, pp 36-38.

“Publicly offered private placements: A new SEC rule opens the door wide to U.S. capital markets”, Revue trimestrielle de droit financier n°4 2013/n°1 2014, pp 194-197.

Presentations « Réussir une levée de fonds aux Etats-Unis » at the Chambre de commerce et d’Industrie de Paris Ile-de-France, February 13, 2014, June 27, 2013, and November 8, 2012, and at Paris Incubateurs, April 11, 2014.

« Crowdfunding et placements privés : un vent d’innovation pour les PMEs », avec Laurent Beauvoit, Echanges, la revue des directeurs financiers et contrôleurs de gestion, septembre 2012.

“Liberalization of U.S. private placement regulations may permit crowdfunding and general solicitation”, Revue trimestrielle de droit financier 2012, n°1, p.30-31.

“Private rights of action in cases involving transnational securities fraud: the view from England, France and Germany”, with Peter Mankowski, Alain Pietrancosta and Carsten Gerner-Buerle, Revue trimestrielle de droit financier 2011, n°1-2, p.66-79.

“ADR programs and U.S. legal risk“, Revue trimestrielle de droit financier 2009, n°3, p.10-12.

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