Over the years, the rapid expansion of private equity, real estate, hedge funds, and venture capital in conjunction with inconsistent Anti-Money Laundering (AML) and Know Your Customer (KYC) policies, and criminal activity exploiting investment adviser firms, has led to serious concerns about the illicit finance risks investment advisers pose for investors.
These concerns motivated regulators to repeatedly propose imposing AML requirements on investment advisers.
But those original proposals were not implemented, and Anti-Money Laundering and Know Your Customer programs remained voluntary for investment advisers*.
Until now.
Read More
Gaining access to financial capital – whether via equity or debt – is essential to the creation and growth of businesses. At the same time, access to capital remains a major challenge for entrepreneurs starting up and building enterprises across our economy. And since the financial crisis and Great Recession, it arguably has become more difficult to access capital from institutional banks and various capital market players.
Read More
Companies and individuals are not the only ones that invest in private equity.
Trusts can also be private equity investors.
A main tool used by estate planning attorneys to handle the disbursement of property for their clients during their lifetimes and after death, trusts, when properly structured, can be used to invest in alternative investments — such as private equity.
Trusts can be structured to be “accredited investors” or “qualified purchasers” for investment purposes. Below, we will look at some of the complexities that navigating the qualified purchaser threshold has for trusts investing in private securities.
But first, let’s get clear about the entities we are talking about: trusts.
Read More
Why is the Definition of “Accredited Investor” Important?
In the U.S., not just anyone can invest in unregistered securities.
To participate in many private equity opportunities, such as venture capital, hedge funds, or pre-IPOs (Initial Public Offering), an individual or entity must qualify as an “accredited investor.”
As the primary federal regulatory agency responsible for securities, the Securities and Exchange Commission (SEC) determines who qualifies as an “accredited investor.
Read More
As the primary source of new jobs and employment, our economy’s success relies heavily on the success of small businesses. Access to capital is critical to the advancement of any business. However, raising capital is one of the most difficult aspects of business for any small company. Congress and the Securities and Exchange Commission (SEC) recognize that there is a tension between providing access to capital for small businesses and the burdens that securities regulations impose on small companies. To somewhat harmonize these two tensions, Congress has given the SEC permission to pass regulations that make it easier for small businesses to raise capital.
Two exemptions that are helping small businesses by providing easier access to capital are Regulation D (“Reg. D”) and Regulation A+ (“Reg. A” or “Reg. A+”) of the Securities Act of 1933 (“Securities Act”).
But before we delve into the specifics of how these exemptions are helping small businesses, let’s review what each of these exemptions are.
Read More
In a previous blog post, we reported on the discussions held at the SEC’s 2024 Small Business Forum. Following that forum, the Office of the Advocate for Small Business Capital Formation (“OASB”) submitted its 2024 Small Business Capital Formation Report to Congress (referred to herein as the “2024 Report” or “Report”). In this post, we will look at what is in that 2024 Report.
Read More
For any startup or new business, raising capital is essential. But that doesn’t mean it’s easy. It’s no secret that raising capital poses the biggest concern for small businesses and startups and is one of the most difficult aspects of getting any business off the ground.
Federal and state securities laws can complicate capital raising significantly for companies raising money through the offer and sale of securities. For example, while securities law exemptions like Rule 506(c) allow an issuer to offer and sell securities without having to register with the Securities and Exchange Commission (SEC), as we will discuss more fully below, there are serious consequences for noncompliance.
Read More
In an October 2024 report developed for the SEC’s Office of the Advocate for Small Business Capital Formation (SEC OASB) and co-authored by Dean T. Powell, (referred to as “the report” or “the Howell report”), Dr. Sabrina Howell researched and examined the efficacy and use of Regulation D’s Rule 506(c) capital raising exemption for venture capital funds (“VC” s).
In this post, we will briefly summarize the findings of the Howell report.
But first…
Read More
In our recent blog post reporting on the Securities and Exchange Commission’s (SEC) 43rd Annual Small Business Forum, we discussed several challenges small businesses and startups face, including (not limited to) capital raising restrictions, compliance costs, equitable access to capital, and the definition of “accredited investor.”
Legislation recently introduced by Senator Tim Scott addresses — and, if passed, may resolve — several of these issues.
Read More
Securities — any “fungible, negotiable financial instrument that holds some type of monetary value” — must be registered with the Securities and Exchange Commission (SEC). Exemptions exist, such as Rule 506(c) of Regulation D. Generally speaking, before a security can be promoted, sold, or traded, it must be registered or issued pursuat to an exemption from the registration requirement. Failing to register a security carries some pretty heavy consequences, as we will discuss more fully below. Among them, however, is this: selling or attempting to sell unregistered securities is a felony.
Read More