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.
In a recent transaction that I worked on – obviously, I can’t give too much detail to protect client confidentiality – I noticed a weird dynamic. In a typical negotiation, when the lawyers from each side are speaking without the principals present, there is some degree of emotional detachment from the ultimate outcome, even though each attorney knows his or her role is to represent the client’s interest. Lawyers will say, for example, that it’s not worth continuing to argue about a particular bone of contention because it is a “business issue” that needs to be worked out by the principals. However, in this transaction, the other attorney, though he was unfailingly polite and even-keeled, would make fairly routine requests from our side seem thoroughly unreasonable, putting me on the defensive.