JOBS Act/Crowdfunding. Alistair Johnson, Surveillance Director, FINRA, New Orleans District Office

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1 JOBS Act/Crowdfunding Alistair Johnson, Surveillance Director, FINRA, New Orleans District Office Alistair E. Johnson, Surveillance Director in FINRA s New Orleans District Office, manages regulatory coordinator staff responsible for the ongoing financial monitoring, sales practice surveillance and examination planning for member firms in the New Orleans District. Prior to becoming Surveillance Director, she was a senior regulatory specialist in FINRA s Regulatory Programs Group working on the development and support of FINRA s National Examination Program. This included authoring and approving examination policies and procedures on a variety of topics. She also serves as an Anti-Money Laundering Regulatory Specialist and has been involved in most aspects of interpretation and enforcement of FINRA and federal AML rules. She has designed and conducted AML training for both FINRA staff and the financial services industry. She is also a frequent speaker on the topic of AML. Prior to joining Regulatory Programs in 2006, she was a special investigator in the New Orleans District Office since 1999, conducting cycle, sweep and cause examinations. Ms. Johnson received her bachelor s degree from Tulane University in New Orleans. She is also a designated Certified Regulatory and Compliance Professional (CRCP) and Certified Anti-Money Laundering Specialist (CAMS). Dan Nathan, Partner, Morrison Foerster Dan Nathan is a partner in Morrison Foerster s Securities Litigation, Enforcement and White-Collar Defense Group. Mr. Nathan s practice includes representation of companies and individuals who are involved as witnesses or subjects in investigations conducted by the SEC, the CFTC, FINRA, and other regulatory entities involving financial institutions or transactions. Mr. Nathan also consults with financial institutions on examinations, supervisory procedures, product disclosure and supervision, and other regulatory matters. Mr. Nathan is the former Vice President and Regional Enforcement Director for the Financial Industry Regulatory Authority (FINRA). During his five-year tenure at FINRA, Mr. Nathan oversaw 70 lawyers across 15 offices responsible for bringing up to 900 disciplinary actions annually against broker-dealer firms, registered representatives and associated persons. This included many of FINRA s most significant nationwide enforcement actions, including actions and sweeps involving mutual fund breakpoints, structured products sales practices and supervision, auction-rate securities advertising, disclosure and supervision, private placement due diligence and disclosure, mutual fund prospectus delivery, anti-money laundering procedures and market timing. Mr. Nathan also closely collaborated with FINRA s Member Regulation examination staff. In his 12 years at the SEC, Mr. Nathan served as Assistant Director in the Division of Enforcement, where he supervised federal securities investigations of insider trading, market manipulation, financial fraud and accounting misconduct. In nine years with the CFTC, Mr. Nathan served as Deputy Director of Enforcement, with responsibility for oversight of the agency s Enforcement Division. He also created the CFTC s Office of Cooperative Enforcement, which dramatically expanded the joint enforcement efforts between the CFTC, the Department of Justice, the SEC and state authorities. In those roles, Mr. Nathan closely focused on market manipulation, trade practices, commodity trading advisor practices and foreign exchange dealer practices. Mr. Nathan received his law degree from New York University School of Law, where he served as articles editor for the Journal of International Law and Politics, and graduated from the Massachusetts Institute of Technology with a B.Sc. in Economics. He is admitted to practice in New York and Washington, D.C. Lisa Robinson, Director, Membership Application Program, FINRA Lisa Robinson has been in the Member Application Program group since it became centralized in January 2011 and was promoted to Director in July Ms. Robinson is responsible for overseeing a staff of approximately 45 examiners and six managers, who review all member application matters filed with FINRA. She also proposed the concept for and oversees the newly formed MAP Triage Group. Prior to

2 joining MAP, Ms. Robinson was an associate director in District 10 (New York), where she was responsible for the oversight and execution of the District 10 examination plan, including cycle, cause and branch examinations, for several member firms. Ms. Robinson also spent seven years as a cycle and cause supervisor. She has served on several special projects on both a national and regional level. Before joining FINRA, Ms. Robinson worked at a large mutual fund company. She is a Certified Regulatory and Compliance Professional and received a bachelor s degree from Nova Southeastern University. Joe Savage, Vice President and Counsel, Regulatory Policy, FINRA Joseph P. Savage is a vice president and counsel in FINRA s Regulatory Policy Department. Mr. Savage specializes in a broad range of securities regulatory matters, including investment management, investment company, advertising and broker-dealer issues, and regularly appears at conferences regarding these issues. Prior to joining FINRA, he was an associate counsel with the Investment Company Institute and an attorney with the law firms of Morrison & Foerster LLP and Hunton & Williams. Mr. Savage also served as a judicial law clerk for United States District Judge John P. Vukasin of the Northern District of California. Mr. Savage holds a bachelor s degree from the University of Virginia, a master s degree in public policy from the University of California, Berkeley, and a law degree from the University of California, Hastings College of the Law, where he served as Note Editor of the Hastings Law Journal.

3 South Region Compliance Seminar JOBS Act / Crowdfunding November 21, 2014 JOBS Act / Crowdfunding Moderator Alistair Johnson, Surveillance Director, FINRA New Orleans District Office Panelist Dan Nathan, Partner, Morrison Foerster Panelist Lisa Robinson, Director, FINRA Membership Application Program Panelist Joe Savage, VP and Counsel, FINRA Regulatory Policy 1

4 JOBS Act / Crowdfunding Agenda Emerging Growth Companies and Research Implications General Solicitation of Private Offerings Crowdfunding and Funding Portals Overview of JOBS Act Title I: Emerging Growth Companies Title II: General Solicitation of Private Offerings Title III: Crowdfunding Title IV: Small Company Capital Formation Title V: Private Company Flexibility and Growth Title VI: Capital Expansion Title VII: SEC Outreach 2

5 Title I: Emerging Growth Companies What is an EGC? Company with annual revenue of less than $1.0 billion for its most recently completed fiscal year, subject to disqualification events. Title I: Emerging Growth Companies Research Implications Effectively superseded - only for EGC IPOs - existing FINRA rules that imposed research quiet periods during the 40 days (or, for participating firms other than managers/co-managers, the 25 days) immediately following an IPO, as well as during the 15 days before the expiration of a company or shareholder lock-up agreement with underwriters.* Effectively eliminated only for EGC IPOs - FINRA interpretation/rule that prevented research analysts from participating in communications with internal sales personnel in the presence of company management, as well as restricted the ability of research analysts to participate in communications (other than for offering-related due diligence purposes) with company management in the presence of investment banking personnel.* * See RN where FINRA Rules were amended. * Not available for firms subject to Global Research Analyst Settlement. 3

6 Title I: Emerging Growth Companies Research Implications Research practices remain largely unchanged. Pre-deal research in connection with EGC IPOs has not emerged. Most market participants voluntarily restrict the publication of research for a contractually agreed period (typically 25 days) following the IPO. EGC research reports have emerged during the former quiet periods surrounding lock-up waivers, as well as secondary and follow-on offerings. 1 1 Latham & Watkins LLP, The JOBS Act Two Years Later: An Updated Look at the IPO Landscape, April 5, 2014 Title I: Emerging Growth Companies Research Implications SEC staff guidance: Associated persons including investment banking personnel, may arrange communications between research analysts and investors in connection with an EGC IPO. For example, an investment banker could forward a list of clients to a research analyst that the analyst could, at his or her own discretion and with appropriate controls, contact. FINRA Rules still prohibit analysts from soliciting investment banking business or providing promises of favorable research. Due to this and difficulties drawing lines between permissible and prohibited analyst conduct, many firms are continuing to employ pre-jobs Act policies and procedures that prevent research analysts from attending investment banking pitch meetings. 4

7 Title II: General Solicitation of Private Offerings Amendments to SEC Rule 506 Elimination of Prohibition Against General Solicitation Reasonable Steps to Verify Accredited Investor Status Reasonable Belief that All Purchasers are Accredited Revision to Form D Issues for Private Funds Amendments to SEC Rule 144A Application of FINRA Advertising Rules Title II: General Solicitation of Private Offerings Bad Actor Disqualifications very expansive coverage Dodd-Frank Act Requirements Covered Persons Disqualifying Events Convicted, within ten years of any felony or misdemeanor Suspension, Expulsion or Bar from SEC or FINRA Violation of law/regulation prohibiting fraudulent, manipulative or deceptive conduct Waivers Transition Issues Note: If any disqualification event occurred before 9/23/13, purchasers must be provided with written disclosure of any matters that would have triggered disqualification pursuant to Rule 506(e). 5

8 Title III: Crowdfunding What is Crowdfunding? 1933 Act Registration Exemption for Crowdfunded Securities Offerings Limited to $1 million in 12 months Low Per-Investor Limitations Issuer Information Filed with SEC and Provided to Investors and Funding Portals Limitations on Advertising and Compensation Title III: Crowdfunding Intermediaries: Either Broker-Dealer or Funding Portal Limitations on Funding Portals Funding Portals Must Join FINRA Intermediary Requirements 6

9 Title III: Crowdfunding FINRA-proposed Funding Portal Rules: 1. General Standards (Funding Portal Rule 100) 2. Membership Application (Funding Portal Rule 110) 3. Conduct (Funding Portal Rule 200) 4. Compliance (Funding Portal Rule 300) - Supervision of associated persons - AML Compliance Program - Reporting of regulatory proceedings and disciplinary events - Contact Information 5. Investigations & Sanctions (Funding Portal Rule 800) 6. Procedure Code (Funding Portal Rule 900) 7. Arbitration/Mediation (Funding Portal Rule 1200) Resources SEC JOBS Act Frequently Asked Questions About Research Analysts and Underwriters: FINRA Regulatory Notice SEC Approves Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to Conform to JOBS Act Requirements: SEC Compliance and Disclosure Interpretations on Securities Act Rules FINRA s Crowdfunding Portal page: 7

10 Questions 8

11 Session Notes