Tag Archives: SEC

SEC Amends Rules to Expand Pool of Public Companies that Qualify as “Smaller Reporting Companies”

SECThe Securities and Exchange Commission (SEC) recently adopted rule amendments that are intended to promote capital formation and reduce compliance costs for small public companies, while maintaining appropriate investor protections.  Effective as of September 10, 2018, the definition of “smaller reporting company” will be amended to allow more companies to qualify as smaller reporting companies, and take advantage of scaled disclosure requirements in their reports they file with the SEC.  The rule amendments adopted by the SEC provide that a company with a public float of less than $250 million (i.e. voting and non-voting common stock held by non-affiliates as of the last business day of the company’s most recently completed second fiscal quarter) will qualify as a smaller reporting company.  In addition, the new rules provide that companies with less than $100 million in annual revenues and either no public float or a public float that is less than $700 million will qualify as smaller reporting companies.

Smaller Reporting Company Test Current Rule to Qualify as Smaller Reporting Company Revised Rule to Qualify as Smaller Reporting Company
Public Float Test Public float of less than $75M Public float of less than $250M
Revenue Test Less than $50M of annual revenues and no public float Less than $100M of annual revenues and public float of less than $700M (or no public float)

The new rules also provide that if a company exceeds the thresholds listed above and therefore fails to qualify as a smaller reporting company, the company will remain unqualified until it meets other lower caps set at 80% of the initial qualification caps as of a date of annual determination.  This is designed to avoid scenarios where companies enter and exit smaller reporting company status because of small fluctuations in their public float or revenues.  For example, to qualify as a smaller reporting company under the public float test, a company would need to have a public float of less than $200 million if it had a public float of $250 million or more in the prior year and under the revenue test, a company would need to have less than $80 million of annual revenues if it previously had $100 million or more of annual revenues and less than $560 million of public float if it previously had $700 million or more of public float.

Smaller Reporting Company Test if Initial Thresholds are Exceeded Current Rule to Qualify as Smaller Reporting Company Revised Rule to Qualify as Smaller Reporting Company
Public Float Test Public float of less than $50M Public float of less than $200M, if it previously had $250M or more of public float
Revenue Test Less than $40M of annual revenues and no public float Less than $80M in annual revenues if it previously had $100M or more of annual revenues; and public float of less than $560M, if it previously had $700M or more of public float


Jonathan Friedman

Jonathan Friedman is Partner at the law firm of Stubbs Alderton & Markiles, LLP. Jonathan advises a wide range of both public and private clients, including development-stage, emerging-growth, and middle-market companies as well as angel investors, venture capital firms and strategic investors. Jonathan’s practice focuses on corporate finance, mergers and acquisitions, securities law, intellectual property licensing and general corporate and business matters. Jonathan also has experience forming venture capital funds.  Jonathan has represented corporations and other entities in a variety of industries, including Internet and e-commerce, apparel, medical devices, entertainment and high technology.

Jonathan has substantial experience managing strategic transactions, including private equity and debt financings transactions, mergers and acquisitions in the public and private markets, offerings by public companies and angel and venture capital financing transactions. In addition, Jonathan counsels companies in connection with SEC reporting requirements and registrations, federal and state securities laws, corporate governance issues, joint ventures and strategic alliances and commercial contracts. Jonathan also has expertise in advising companies in their formation process.

As part of his practice, Jonathan facilitates cross-border financings, mergers and acquisitions and expansions by companies into new markets and works to promote bi-lateral trade opportunities between Canada and the United States that will result in the job creation, investment connection and trade partnership support.

To learn more about our Public Securities Practice, contact Jonathan Friedman at jfriedman@stubbsalderton.com



Stubbs Alderton & Markiles’ Joint Venture FlashFunders Launches Industry Standard for Online Equity Funding

Flash Funders

No-Fee Platform Connects Accredited Investors to
Innovative Startups Pursuant to the JOBS Act

SANTA MONICA, Calif.: Oct. 16, 2014 – FlashFunders today announced the launch of its no-fee, online equity funding platform at www.flashfunders.com.  FlashFunders (member FINRA/SIPC) was started by Europlay Capital Advisors, law firm Stubbs Alderton & Markiles, and co-founders Vincent Bradley and Brian Park, and was formed to help startups raise capital efficiently while also opening up access to startup investing for accredited investors.

FlashFunders’ platform helps entrepreneurs navigate complex SEC regulations and offsets costly legal fees, while giving accredited investors unprecedented access to startup investment opportunities. FlashFunders provides a turnkey solution for raising capital and a marketplace where entrepreneurs can connect directly with accredited investors across the globe.

FlashFunders ensures all investors are accredited and that all offerings are SEC-compliant and executed using FDIC-insured escrows — which are created and paid for by FlashFunders.

“We worked with FINRA over the past year to expand the scope of our broker-dealer license, allowing FlashFunders to operate an online equity funding platform in a regulated environment,” said Vincent Bradley, the co-founder of FlashFunders. “We felt it was critical to ensure our platform was compliant for both startups and investors. Online equity funding is in its infancy and seeing tremendous growth; by engaging with FINRA, we’re leading the way for how it should be done — creating an industry standard.”

“97% of the 8.5 million accredited investors in the United States currently don’t partake in startup investing,” said Mark Dyne, the chairman and founder of Europlay, a seed and early-stage investor in technology companies, as well as former Skype seed investor and board member and founder and CEO of Sega Ozisoft, Virgin Interactive Entertainment, and many others. “This is largely because they don’t have access to early stage companies. Leveraging technology and decades of combined experience in finance, venture investing, securities law and startup operations, FlashFunders provides entrepreneurs and investors a secure, SEC-compliant user experience, with e-Signature technology and document management capabilities backed by a team of FINRA-registered representatives to help ensure successful offerings on the platform.”

“FlashFunders is designed to fundamentally alter the capital-raising process,” said Brian Park, co-founder of FlashFunders. “We provide startups with a compliant, efficient and no-fee online equity funding platform to develop their business plans, publicly market their offerings and collect funding from accredited investors —saving startups thousands of dollars in legal fees. At the same time, investors on FlashFunders can purchase shares directly in startups with no transaction fees or carried interest charges.”

FlashFunders creates a safe and intuitive process that allows investors to view startup offerings and execute investments legally and properly in minutes using Flash Seed Preferred documents and e-Signature technology.

FlashFunders has created “Flash Seed Preferred,” a set of safe, balanced and transparent investment documents that have been customized to facilitate fundraising on the platform, further streamlining a process that would otherwise take months of road shows, multiple middlemen and tens of thousands of dollars in legal fees to execute.

“Unlike other equity funding portals, FlashFunders does not curate or try to pick winners, and investments are not made through LLCs or Special Purpose Vehicles,” said Scott Alderton, Managing Partner at Stubbs Alderton & Markiles, LLP. “FlashFunders provides a seamless end-to-end solution for startups raising capital with virtually no external cost, fees or investor carry. FlashFunders receives an ongoing right to invest a limited amount under the same terms as all other investors if a startup is successful in getting funded on the platform.” Stubbs Alderton & Markiles, LLP is southern California’s leading business law firm, with deep experience in providing legal services to companies including LinkedIn, Beats by Dre and Skype, among many others.

The announcement today is the first phase of FlashFunders’ rollout. Additional enhancements to the user experience will be added over time along with new tools and technologies to increase functionality and scale. Offerings from startups will be incrementally uploaded by the site’s concierge service, which assigns a live team to guide entrepreneurs through the process.

“We are educating a new generation of investors and building a more efficient roadshow for startups,” said Vincent Bradley.

About FlashFunders

A registered broker-dealer, member FINRA/SIPC, FlashFunders provides a no-fee online equity funding platform for entrepreneurs to publicly market their offerings, collect funding from accredited investors and gain access to SEC-compliant legal documents and escrow accounts to create their offerings.

For more information, visit: http://www.flashfunders.com

Media Contact:
Amy Morris                                                 Susan Guerra
FlashFunders                                              Thatcher+Co.
amyshapiromorris@gmail.com               sguerra@thatcherandco.com
917.887.2725                                              973.650.6555


Stubbs Alderton & Markiles, LLP Client Alert

VC-Stock-ImageSEC Lifts Ban On General Solicitation, Allowing Startups
To Advertise That They Are Fundraising

The SEC has adopted rules implementing section 201(a) of the JOBS Act, which lifts the ban on general solicitation and advertising in private placement transactions.  This monumental change in the private placement regulations permits startups, venture capitalists, and hedge funds to openly advertise that they’re raising money in private offerings. Investment is still limited to accredited investors, and fundraisers must take reasonable steps to verify that investors are in fact accredited. In addition, issuers will have to file a Form D with the SEC at least 15 days before they begin general solicitation, and amend that Form D to state that they’re done soliciting within 30 days of finishing.  The rules will be effective in approximately 60 days.

Click here for a link to the SEC announcement and copies of the final rules: http://www.sec.gov/news/press/2013/2013-124.htm.

SEC is still to rule on the most significant provisions of the JOBS Act, which would allow true equity crowdfunding. We will post further details as they become available.

For more information about the JOBS Act and crowdfunding, please contact Sean Greaney, Partner at Stubbs Alderton & Markiles, LLP  at (818) 444-4504 or sgreaney@stubbsalderton.com


SEC News Flash From Stubbs Alderton & Markiles, LLP – SEC Clarifies That Social Media Outlets Can Be Used For Company Announcements If Investors Are Alerted

On April 2, 2013, the Securities and Exchange Commission (SEC) issued a report (Report of Investigation) on its investigation of Netflix, Inc. (Netflix) and its CEO, Reed Hastings (Hastings), which clarifies the SEC’s position that companies can use social media outlets like Facebook and Twitter to disseminate material, non-public information in compliance with Regulation FD so long as companies first alert investors about which social media will be used for this purpose.

The SEC’s Division of Enforcement had investigated whether Netflix and Hastings violated Regulation FD when Hasting’s used his personal Facebook page, on July 3, 2012, to announce that Netflix had streamed 1 billion hours of content in the month of June.  Netflix did not otherwise publicly disclose this information to investors.  Neither Hastings nor Netflix had previously used Hasting’s Facebook page to announce Netflix metrics, nor were investors alerted that Hastings’ personal Facebook page might be used for this purpose.  Netflix’s stock price rose considerably following the announcement.

In its Report of Investigation, the SEC concluded that its August 2008 Guidance on the Use of Company Web Sites (2008 Guidance), though largely focused on the use of web sites, its equally applicable to current and evolving social media channels of corporate communication.  As discussed in the 2008 Guidance, companies must take steps sufficient to alert investors and the market to the web sites, social media outlets and other communication channels the company will use to disseminate material, non-public information.

A copy of the SEC’s news release can be found here.

A copy of the SEC’s Report of Investigation can be found here.

A copy of the SEC’s 2008 Guidance can be found here.

For further information about the use of social media outlets to disseminate company announcements, contact John McIlvery, Public Securities Group Chair, at jmcilvery@stubbsalderton.com or (818) 444-4502.


Nasdaq Proposes Rules Establishing Listing Standards for Compensation Committees and Selection of Compensation Advisors

The NASDAQ Stock Market, LLC (Nasdaq) has proposed rules to adopt new listing standards for compensation committees and for the selection of compensation advisers in a filing with the Securities and Exchange Commission (SEC) on September 25, 2012. The Nasdaq proposed rules are subject to public comment and SEC approval. Once finalized, these listing standards will implement SEC Rule 10C-1, adopted pursuant to Section 10C(a) of the Securities Exchange Act of 1934 and Section 952 of the Dodd-Frank Act, which directs the national securities exchanges to establish listing standards for compensation committees and the selection of compensation advisers.

Standing Compensation Committee

For the first time, Nasdaq will require a listed company to have a standing compensation committee comprised of at least two members. Recognizing that responsibility for executive compensation decisions is one of the most important responsibilities entrusted to a board of directors, Nasdaq is proposing to eliminate the current alternative of allowing compensation decisions to be made by a majority of independent directors in favor of such decisions being made by a standing committee dedicated solely to oversight of executive compensation. The proposed rules also establish a requirement to adopt a compensation committee charter and to review and assess the adequacy of such charter on an annual basis.

Compensation Committee Composition

As proposed by Nasdaq, compensation committees must be comprised of at least two members. Each member of the compensation committee must:

  • be an “Independent Director”, as defined in Nasdaq Listing Rule 5605(a)(2);
  • not receive, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or its subsidiaries during the member’s term of service on the compensation committee; and
  • not be affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company under circumstances where the affiliation would impair the director’s judgment as a member of the compensation committee.

General Independence. Currently, Nasdaq has a two-part test for independence under Rule 5605(a)(2). In addition to certain categories of directors who cannot be considered independent, the board must make an affirmative determination that the director has no relationship that, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Nasdaq has proposed to leave unchanged its two-part test for independence under Rule 5605(a)(2).

Prohibition on Compensatory Fees. Nasdaq has proposed a bright-line test that would prohibit a compensation committee member from receiving, directly or indirectly, any consulting, advisory, or other compensatory fees while serving on the compensation committee, other than compensation for board service or the receipt of fixed amounts of compensation under a retirement plan for prior service with the listed company. This approach is consistent with eligibility standards for service on audit committees.

Company Affiliations. Nasdaq also considered to what extent a director’s affiliations should be considered in determining the director’s eligibility for service on the compensation committee. Distinguishing compensation committees from audit committees, Nasdaq concluded that “a blanket prohibition would be inappropriate for compensation committees,” acknowledging that “it may be appropriate for certain affiliates, such as representatives of significant stockholders, to serve on compensation committees since their interests are likely aligned with those of other stockholders in seeking an appropriate executive compensation program.” While the proposed Nasdaq rules require that boards of directors consider whether any affiliations would impair a director’s judgment as a member of the compensation committee, Nasdaq does not propose any bright-line rules. Also, there is no “look-back” period; consequently, the board need only consider affiliation with respect to relationships that occur during the director’s service on the committee.


Nasdaq proposes to retain its existing exception that allows a non-independent director to serve on the compensation committee under “exceptional and limited circumstances.” If a compensation committee consists of at least three members, one director who is not independent and meets certain other tests may serve on the compensation committee for up to two years if the board, under exceptional and limited circumstances, determines that the director’s service on the committee is required by the best interests of the company and its stockholders.

Smaller Reporting Companies

Nasdaq proposes to require smaller reporting companies to have a compensation committee comprised of at least two Independent Directors. Smaller reporting companies would not need to adhere to the new requirements relating to compensatory fees and affiliation. Smaller reporting companies also would be required to adopt a formal written compensation committee charter or board resolution that includes the same content as other companies; however, they would not need to incorporate into their charters or board resolutions the language in Rule 10C-1 regarding authority to retain and fund compensation consultants and counsel and responsibility to consider the independence of advisers and counsel, nor would they be required to review and reassess the adequacy of the charter or board resolutions annually.

Cure Period

SEC Rule 10C-1(a)(3) requires national exchanges to provide appropriate procedures for listed companies to have a reasonable opportunity to cure any noncompliance with the compensation committee standards that could result in the delisting of the company’s securities. The listing standards may also provide that if a member of the compensation committee ceases to be independent for reasons outside of the member’s reasonable control, that person, with notice by the company to the applicable exchange, may remain on the compensation committee until the earlier of the next annual meeting of stockholders or one year from the occurrence of the event. Nasdaq adopted the SEC’s cure period, modified to provide that if the company’s annual stockholders’ meeting occurs within 180 days following the event that caused the noncompliance, the company will instead have 180 days from the date of the event to cure the noncompliance.

Independence of Consultants and Counsel

SEC Rule 10C-1 provides that compensation committees are not required to select consultants, counsel or other advisers that are “independent,” but instead, in making their selections, compensation committees must take into account the following six factors, which bear upon independence:

  • the provision of other services to the company by the employer of the compensation consultant, counsel or other adviser (referred to as the “advisory firm,” as distinguished from the individual adviser);
  • the amount of fees received from the company by the advisory firm, as a percentage of the advisory firm’s total revenue;
  • the advisory firm’s policies and procedures that are designed to prevent conflicts of interest;
  • any business or personal relationship of the compensation consultant, counsel or other adviser with a member of the compensation committee;
  • any stock of the company owned by the compensation consultant, counsel or other adviser; and
  • any business or personal relationship between an executive officer of the company and the compensation consultant, counsel, other adviser or the advisory firm.

Nasdaq concluded that these six independence factors were adequate and did not propose any additional factors in its listing standards.

Anticipated Effective Dates and Transition Period

Nasdaq’s proposed rule relating to the compensation committee’s responsibilities and authority, including the responsibility to consider the independence of compensation advisers, would be effective immediately following SEC approval. The remaining provisions, including compensation committee independence requirements, would become effective on the earlier of the company’s second annual meeting held after the date of approval of the proposed rules, or December 31, 2014.


John McIlveryJohn McIlvery, Partner and Chair of the Public Securities Practice Group at Stubbs Alderton & Markiles, LLP discusses the rules proposed by Nasdaq governing the listing standards for compensation committees and for the selection of compensation advisors.

For more information about the Public Securities Practice at Stubbs Alderton & Markiles, LLP, contact John McIlvery at jmcilvery@stubbsalderton.com or (818) 444-4502.


SEC Releases Proposed Rules Eliminating General Solicitation and Advertising Prohibitions in Rule 506 and 144A Offerings

(August 29, 2012) The SEC has published proposed amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 in order to implement the requirements of the JOBS Act.  The proposed amendments would eliminate the general solicitation and general advertising prohibitions in those Rules for offerings made solely to accredited investors.

The proposed amendments to Rule 506 would eliminate the prohibition against general solicitation for offers and sales of securities under Rule 506 in which all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify the purchaser’s accredited investor status.  Rather than specifying particular steps required to be taken by the issuer to verify accredited investor status, the determination as to whether steps are reasonable under the proposed rules would be determined on a case-by-case basis, based on the particular facts and circumstances.  Factors to be considered include (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be, (2) the amount and type of information that the issuer has about the purchaser; and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

With respect to Rule 144A offerings, the SEC has proposed an amendment to Rule 144A(d)(1) that would provide that securities may be offered other than to qualified institutional buyers (QIBs), provided that they are sold only to those persons that the seller and their agents reasonably believed to be QIBs.

The SEC has requested comments on the proposed rule amendments and related topics from the public. Comments on the proposals should be received on or before September 28, 2012.  Comments may be submitted by internet, email or paper and will be available for viewing and printing in the SEC’s Public Reference Room.

The text of the SEC’s proposal and request for comment is available at http://www.sec.gov/rules/proposed/2012/33-9354.pdf.

For more information regarding this Alert, other provisions of the JOBS Act including crowdfunding provisions, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at jmcilvery@stubbsalderton.com.


Crowdfunding – Wait for It. . .

by:  Susan Wong

The SEC has issued a public reminder that while the JOBS Act has been signed into law, the crowdfunding exemption provided in Title III of the Act is not available for use until the required regulations have been adopted by the SEC.  Pursuant to the JOBS Act, the SEC was directed to adopt these measures by December 31, 2012, and the SEC has begun to collect public comments toward this end.  Initial proposed regulations have not yet been made available for public review and comment.

For more information regarding this Alert, other provisions of the JOBS Act or crowdfunding initiatives, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at 818.444.4502 or jmcilvery@stubbsalderton.com.


SEC Cracks Down on Firms Trading Facebook Pre-IPO Shares

The SEC Cracks Down on Firms Trading Facebook Pre-IPO Shares.  To view this article by All Things D, click here.

To view the SEC consent decrees click:

SEC vs. SharesPost, Inc. and Greg B. Brogger

SEC vs. Laurence Albukerk and EB Financial Group, LLC

For more information regarding these matters, please contact John McIlvery, Group Chair of SAM’s Public Securities Practice.