CFTC Cryptocurrency Enforcement Receives Further Judicial Support

By William Kane and Pavel Sternberg on October 11, 2018 Posted in Cryptocurrency

The Commodity Futures Trading Commission (“CFTC”) obtained an important court win and boost to its regulatory authority over Cryptocurrencies this month. A federal district court in Massachusetts recently issued a decision in CFTC v. My Big Coin Pay Inc. which affirmed the CFTC’s position that all virtual currencies are commodities and subject to CFTC jurisdiction.[1] The opinion follows another recent district court opinion in New York, CFTC v. McDonnell, in which a court also interpreted the Commodity Exchange Act (“CEA”) to find that cryptocurrencies constitute a commodity under the CEA.[2] CFTC Chairman Giancarlo in a speech last week in Minneapolis further emphasized the CFTC is continuing to increase civil enforcement actions with 83 having been filed in the last CFTC fiscal year resulting in over $900 million in civil penalties.[3] The current political efforts to dismantle the Dodd Frank Act apparently have done little to slow down the CFTC Division of Enforcement, in particular when it comes to regulating cryptocurrencies. Continue Reading

Recent Development in Regulatory Enforcement of Digital Securities

By Richard A. Friedman on September 13, 2018 Posted in Securities and Exchange Commission

In a flurry of activity and confluence of developments, the SEC, FINRA and a Brooklyn federal judge have commenced actions and made rulings that continue to define the regulatory framework and obligations surrounding the sale and trading of digital securities, whether they are labeled as cryptocurrencies or tokens.

Airdrop of Crypto Tokens Hits Regulatory Flak

By Robert Wernli, Jr., Robert Weber and Osama Khan on August 28, 2018 Posted in Securities and Exchange Commission

On August 14, 2018, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (the “Tomahawk Order”) against Tomahawk Exploration LLC (“Tomahawk”) and David Thompson Laurance (“Laurance”) for their actions in connection with an initial coin offering of digital assets called “Tomahawkcoins” or “TOM” (the “Tomahawk ICO”). Tomahawk and Laurance’s actions were problematic for the same reasons cited by the SEC in other recent orders related to digital assets (e.g. the Munchee Order). Consistent with such orders, the SEC determined that Tomahawkcoins are securities because they constitute investment contracts under the “Howey” test. However, what makes the Tomahawk Order particularly noteworthy are the lessons to be gleaned regarding cryptocurrency “airdropping.” Continue Reading

“Airing Out the Denny Crane Room”: Recent SEC Action Emphasizes Need for Effective Disclosure Controls and Procedures for Executive Perquisites

By Robert Wernli, Jr., Gregory Schick, Arek Malinowski and Seth Lemings* on August 21, 2018 Posted in Disclosure, Securities and Exchange Commission

Last month, Energy XXI, Ltd. (“EXXI”), a publicly-traded oil and gas exploration company, saw its former Chief Executive Officer charged with various securities law violations by the Securities and Exchange Commission (“SEC”). The SEC seeks to have the CEO pay civil money penalties and be barred from any officer or director role with any issuer of registered securities. Continue Reading

SEC Approves Updated Disclosure Requirements

By Robert Wernli, Jr. and Jason Schendel on August 21, 2018 Posted in Disclosure, Securities and Exchange Commission

On August 17, 2018, the Securities and Exchange Commission (SEC) approved amendments to certain of its disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. generally accepted accounting principles (GAAP), international financial reporting standards (IFRS), or changes in the information environment. These changes include amendments to Regulation S-K and Regulation S-X, which provide many of the disclosure requirements that apply to annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, registration statements and other documents filed with the SEC. These amendments become effective 30 days after publication in the Federal Register. Continue Reading

Not So Fast – Challenges in Reincorporating from California to Delaware

By Robert Wernli, Jr. and Lyle W. LeBlang on July 25, 2018 Posted in Venture Capital

There are several reasons that a California corporation may want to reincorporate to Delaware. Venture capital funds or other investors may demand a reincorporation to Delaware as a condition to financing. Cumulative voting for director elections, required for California corporations but not required for Delaware corporations, may have become a problem. The corporation may want to take advantage of the flexibility of Delaware’s business laws, the abundance of legal precedent and the availability of the Court of Chancery to resolve corporate disputes. Whatever the reason, reincorporating from California to Delaware may be more challenging than originally anticipated due to a few complicating factors: (1) California’s long-arm statute, (2) the availability of exemptions from registration and qualification under state and federal securities laws and (3) restrictions under the company’s contracts.[1] Continue Reading

Delaware Chancery Court Strictly Construes Appraisal Statute to Deny Stockholders Appraisal Rights in a Reverse Triangular Merger

By John Stigi and Alyssa Shauer on July 20, 2018 Posted in Appraisal

In City of North Miami Beach Gen. Employees’ Ret. Plan v. Dr Pepper Snapple Group, Inc., C.A. No. 2018-0227-AGB, 2018 WL 2473150 (Del. Ch. June 1, 2018), the Delaware Court of Chancery (Bouchard, C.) denied stockholders of Dr Pepper Snapple Group, Inc. (“Dr Pepper”) appraisal rights related to the reverse triangular merger of Keurig Green Mountain, Inc. (“Keurig”) and a subsidiary of Dr Pepper created for the purpose of effectuating the merger. This decision clarifies standing requirements for appraisal petitions in this merger structure and continues Delaware jurisprudence holding that, to perfect appraisal rights, stockholders must at a minimum meet the requirements of 8 Del. C. § 262 as plainly written. Continue Reading

New York Court of Appeals Rules that Civil Securities Fraud Claims Brought Under Martin Act are Subject to Three-Year Statute of Limitations

By Sarah Aberg and Kate Ross on July 13, 2018 Posted in Courts and ADR

In People v. Credit Suisse Securities (USA) LLC, No. 40, 2018 WL 2899299 (N.Y. June 12, 2018), the Court of Appeals for the State of New York ruled that the three-year statute of limitations of Section 214(2) of the New York Civil Practice Law & Rules (“CPLR”) applies to civil enforcement actions brought under the Martin Act (General Business Law article 23-A) on the basis of a “fraudulent practice” as defined in General Business Law § 352(1). In doing so, the Court overruled both the New York Supreme Court and the Appellate Division and rejected the New York Attorney General’s (“NYAG”) attempt to apply a six-year statute of limitations under CPLR 213(8), which governs the limitations period for common law fraud. The Court’s decision narrows the window of opportunity to assert civil securities fraud claims under the Martin Act’s more forgiving standard. Prosecutors wishing to avail themselves of CPLR 213’s generous six-year statute of limitations will now be required to demonstrate their civil securities fraud claims meet all of the elements of common law fraud. Continue Reading

SEC Expands the Definition of “Smaller Reporting Company”

By Jeffrey Fessler, Robert Wernli, Jr. and Nazia Khan on July 12, 2018 Posted in Capital Markets

On June 28, 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “smaller reporting company” which expand the number of companies that qualify as smaller reporting companies and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The amendments to the definition of “smaller reporting company” will be effective on September 10, 2018. Continue Reading

New Law Requires SEC to Expand Regulation A+ To Exchange Act Reporting Companies

By Alexander Yarbrough, Jeffrey Fessler and Robert Wernli, Jr. on June 19, 2018 Posted in Capital Markets, Emerging Companies, Securities and Exchange Commission

On May 24, 2018, President Donald J. Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”). The Act, which primarily focuses on rolling back certain regulatory provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, also contained a significant change in the law for companies looking to undertake securities offerings in reliance on the revamped Regulation A (commonly referred to as “Regulation A+”) under the Securities Act of 1933. Continue Reading

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