30 posts categorized "November 2012"

Windmills in the desert

Check out these windmills in the desert.

Windmills in the desert 1

My fiance took these pics for me last weekend as we drove east on US Highway 10, just before Palm Springs.

Windmills in the desert 2

It's amazing to me how famous places I've never been to before, when I finally visit, look nothing at all like I imagine them. There are more things in heaven and earth than are conjured up by the mix of imagination, experience and random references.

Unfunded mandates

At the top of her radio show yesterday, Diane Rehm asked departing SEC Chair Mary Schapiro to name the one authority she would wish for the SEC, that the agency does not currently have.

Schapiro responded:

"You know, this might sound a little bit mundane to many of your listeners, but actually, it would be for the SEC to have something called self-funding, which would allow us to adjust our budget to the needs of the regulatory climate. The bank regulators all have that. The FDIC -- and I know Sheila Bair has been on your show many times -- can set their budget to respond to external events. The SEC and the CFTC are the only two financial regulators who can't do that."

It was a parting question. Schapiro left the line, and Rehm and her panelists for the hour went on to talk mostly about the agency's record of enforcement leading up to and following the financial crisis.

Balls in the airMaking the point that the SEC is woefully understaffed, one of the panelists, Bartlett Naylor of Public Citizen, compared the 4200 headcount for the agency with the 35,000 headcount for the New York City Police Department. "We're not even in the ballpark of what's necessary," he said.

The show touched on how the agency is behind on rulemaking under Dodd-Frank, but (unless I missed it) didn't reach into the rulemaking topics under the JOBS Act that are current obsessions of this blog: implementation of the lifting of the ban on general solicitation in Rule 506 offerings; and rules for equity crowdfunding.

I think those of us keyed on the changes promised by the JOBS Act, frustrated by the slow pace of the agency, can lose sight of what an enormous mandate the SEC has. And I'm ruing, again, how everyone looked the gift general solicitation horse in the mouth. If only in terms of timing, surely it would have been better to have thanked the Commission for the proposed rules and urged prompt adoption, rather than asking the staff to go back to the drawing board.

Photo: Ian Parkes / Flickr.

Brian Rogers considers lawyering in the startup ecosystem

This morning I suggest you go over to Brian Rogers' blog, where Brian has answered the question I posed to him last week: “Is a Startup Ecosystem Without Lawyers a Good Thing or a Bad Thing?

Leaving the buildingI'm still reflecting on how Brian divides the startup ecosystem into three segments. He may be right about that, but I want to think about it a bit more.

For that segment of the startup ecosystem in which I think Brian is suggesting he and I work most, Brian recommends that more tasks be handled by nonlawyers within a law firm. That makes sense. But isn't a law firm that can deliver services without lawyers well on the way, possibly, to being something other than a law firm?

Those are just two initial reactions. Go read Brian's post as he has thought this through. He's advancing our important discussion on the topic of document standardization and startup legal costs.

Photo: JF Sebastian / Flickr.

The SEC's proposed rules on general solicitation got it right

piece on Jim Hamilton's blog over the weekend made me reflect again on what a good job the SEC actually did in its recent release proposing rules to implement the lifting of the ban on general solicitation and general advertising for offerings under Rule 506 where purchasers are restricted to accredited investors.

Blowing hornFirst, the Commission proposed to leave the existing Rule 506 alone, merely re-numerated as 506(b). This would mean that the startups and emerging companies that don't wish to engage in general solicitation or general advertising - or, better put, who already satisfy themselves they are within mainstream industry practice at complying with rules written in terms of media that no longer exist - could conduct offerings under Rule 506 the way they do now.

Second, for startups wanting to start advertising right away, as the JOBS Act promised - under the SEC's proposal they would have to follow (vaguely) heightened standards of "verification" of the status of the participating accredited investors. This was the quid pro quo under Section 201 of the JOBS Act, a toll that Congress exacted in exchange for the new permissiveness. As for what counted to satisfy the duty to verify, the Commission's proposed Rule 506(c) simply parroted the statutory language that "reasonable steps" would have to be taken. What's reasonable, the release stated, would depend on the facts and circumstances of a given offering.

What's so very smart about what the SEC proposed is that it would allow industry practice in as yet early days of the Internet Age to continue to evolve. Standards by which to grade the quality of "verification" would gradually ratchet up, over time, as the startup financing ecosystem became more comfortable with embracing 506(c) as the new normative. As alluded to above, compliance with existing 506(b) had already become ostensible at best; the actual practices of digital angels were no longer actually circumscribed by the old analog rules. 506(c) laid a path for new practices of compliance to emerge, and 506(b) provided a bridge over the transitional uncertainty.

Not remarked upon in the SEC release, but animating the potential vitality of the newly bifurcated Rule 506, was a subsection of Section 201 of the JOBS Act that did not require any rulemaking before it took effect. This was the new exemption from federal broker dealer regulation for online angel platforms - accredited investor crowdfunding, if you will. Channeling digital angel activity in the contours of that exemption would further serve to shape models of accredited investor verification that would in time entail "reasonable steps" under Rule 506(c).

Jim Hamilton's article reminds me that Joe Wallin, Doug Cornelius and I are not necessarily in a lonely minority in thinking the SEC got this one right. There's a letter from the Federal Regulation of Securities Committee of the American Bar Association that also praises the SEC for the approach proposed.

Photo: Graham Binns / Flickr.

Gun jumping

Last week, a New York lawyer and I were comparing notes over the phone about the proliferation of online financing platforms, ones catering, or purporting to cater, to private companies seeking funds from accredited investors.

Gun jumping

The conversation began with a question. "Does it appear to you that many of these sites are doing things that are not yet legal?"

Indeed, yes.

Though lawyers will trade URLs of the suspect sites freely amongst themselves, they - we - are all circumspect about publicly tagging domains to doubts.

Though I'm on record for asking questions - not indicting or accusing but asking questions - about what FundersClub is doing.

A comment onf the FundersClub post, asking if I had considered Joe Wallin's post about rules on general solicitation, brought home how easy it is to forget that often Congress writes laws that don't so much make law as in effect tell agencies to write rules to make law. Here's an excerpt of how I replied:

What @joewallin is talking about in the blog post you link to is an SEC release with *proposed* rules to implement the lifting of the ban on general solicitation. The key qualifier here is "proposed." The rules are not final. Unfortunately, unlike other provisions of the JOBS Act, the lifting of the ban on general solicitation did not become effective once the President signed the JOBS Act. Instead, the law said that the SEC must first write rules to implement the change, and the change won't go into effect until the SEC promulgates final rules (unless, of course, Congress passes the legislation again, this time not requiring rulemaking, but I don't know anyone who thinks this is likely).

Gif: Gee Willi / Flickr.

Sweet Tooth

Today we're in Palm Springs, chilling in the sun, reading.

I've started Ian McEwan's new novel, Sweet Tooth. It's told in the first person by a recent university graduate, Serena Frome. She relates the story of how she was recruited to work for the British domestic intelligence service, MI5, at the end of the Swinging Sixties.

Hold on, ostensibly it's told by Serena Frome looking back from the present day. She tells us so early in the book, and at one point she digresses to reflect on how the naked body of her 54 year old lover/recruiter looks merely middle aged in her mind's eye today, not shocking and alien as to her younger self.

I'm sure McEwan sets up the decade-framing device because it will be necessary for a turn in the story later, but interest really picks up when the narrator drops the long lens and speaks as if within the moment of what's told. I've just finished a scene where Serena has survived a vetting by three generations of MI5 operatives and been given her first assignment to "run" an agent in the field. The telling is the more engaging for plausibly being told contemporaneously.

But I'm only a third of the way into the book.

It's about international politics, too, and how the institutions of western democracy are defended in ways overt, surreptitious, and something in between. So I may report back when finished on what lessons the older narrator - who presumably lives among us - may have for us concerning today's geopolitics.

Sweet Tooth

Laguna Beach

Checking in not 36 hours into a road trip down the Southern California coast.

We spent Thursday night and Friday morning in Laguna Beach. Pictured is the beach below Heisler Park.

Laguna Beach

Heisler is a landscaped park and walkway that serves as a kind of luxurious median strip between high density dwellings and the beach. Here's a statue at the north east corner.

Laguna Beach

Laguna Beach reminds us of Cannon Beach, Oregon. Only here there are eucalyptus trees, exotic flowers, and of course palm trees. Check out this tree with wet, peeling paper for bark.

Laguna Beach

Like Cannon Beach, this town has aggressive zoning, banning chain restaurants or at least their signage. The layout is on an easy scale to accept - you can see the entire town from the Pacific Coast Highway.

Last picture: a man who enjoyed sitting in the sunshine so much, he turned to stone.

Laguna Beach

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