Bloomberg Law’s Corporate Transactions Blog recently posted an item entitled “At the Market Offerings are Again Wildly Popular.” (I should note that I am in favor of trying to spice up securities law articles by using words like “wildly,” though if we’re being honest, there is nothing remotely wild described in that article, or this one either.) ATM offerings are a way for already-public companies to raise further capital by selling newly issued shares. They are particularly popular among life sciences companies, which often need to continually raise capital for research and regulatory clearance efforts before having significant revenue with which to fund those activities.
On Twitter recently, a journalist asked for suggestions from other journalists on what advice one should give to college students looking to pursue that field. The TV critic Emily Nussbaum replied “I tell them not to take advice from anyone over 50, bc the industry has changed so much that our career paths aren’t replicable and our advice doesn’t match the landscape.” Is the same true for established lawyers advising students considering law as a career? (If true, I have about a year and a half left, as of this writing, in which I am capable of providing relevant and useful guidance to the young.)
Over the holidays, I finally got around to reading Bad Blood, the story of the rise and fall of the blood testing startup Theranos and its founder, Elizabeth Holmes, written by the Wall Street Journal investigative reporter, John Carreyrou, who broke the story that led to the company’s downfall. I cannot recommend the book more highly. However, you’re not here for book reviews, so let’s move on.
The SEC recently brought an enforcement action against a fund investing in digital assets for a failure to register a sale of securities under Section 5 of the Securities Act. The fund had filed a Form D with the SEC that, in itself, offers no clue as to what went wrong. The form reports the sale of fund interests under the exemption provided by Rule 506(b) of Regulation D. This is the common exemption used for private placements of securities, and by complying with the applicable rules under Regulation D, there would be a safe harbor protecting the issuer against a registration violation.
Rule 506(c), the provision arising out of the JOBS Act that enables companies to raise capital using general solicitation and advertising while still being exempt from SEC registration requirements, has always had the potential to revolutionize the capital raising process. With the ability of companies to connect easily with potential investors anywhere via the internet and social media, one could imagine a world where this supplants private placements under Rule 506(b), in which the investor base is, by definition, limited based on existing relationships with the company or its broker-dealer. While the use of Rule 506(c) has grown since enactment, it has nowhere near the usage rate of Rule 506(b). In 2017, Rule 506(c) offerings represented only 4% in dollar amount of all Regulation D offerings.