JOBS Act Curtain Call: Main Street Growth Act

Posted on June 29, 2015 by admin

This post was written by Pete Hoegler, Washington DC-based Social Media intern for The JLC Group.

Three years after the JOBS Act was passed, it seems that Washington is back for more–a curtain call if you will–making it easier for small ventures to raise capital.

The House Financial Services Committee in early June floated a draft bill that would allow the creation of “venture exchanges” tailored to the needs of small companies looking to raise money. In many ways, the success of the JOBS Act hinges upon the creation of such markets. A healthy secondary market created liquidity that is critical to building investor confidence and creating a robust alternative to the global markets that today are dominated by enormous corporations.

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The new proposed venture exchange laws are aimed at increasing access to liquidity for early stage investors in private startups and small businesses (some of which could be JOBS Act enabled investors), as a lack of liquidity was a concern voiced by some surrounding the new laws for equity crowdfunding with non-accredited investors.

Investors in technology startups, for example, are likely to have to hold their position in any one investment for an average of 7 years. Creating opportunities for selling private stock in a startup investment sooner through venture exchanges has the potential to reduce some of the early stage investment risks.

These new venture exchanges could create markets that allow early investors who invested via equity crowdfunding to trade shares far before any kind of liquidity event like a public offering (IPO) might take place, spelling an opportunity for liquidity for those early investors.

The number of IPOs has gone from an average of 311 from 1980-2000 down to an average of 99 IPOs each year from 2001-2011 so opening up other alternatives for liquidity will de-risk the growing number of startup investments happening online.

This is yet another step towards reforming our capital markets. The first step was to enable access, and was addressed by Titles II, III & IV of the JOBS Act. So regardless of your opinion on this matter, the summer is shaping up to be an interesting time for equity crowdfunding investors, accredited and non-accredited alike.

SEC Busts Boca Raton For Unregistered Broker-Dealer Activity

Posted on June 27, 2015 by admin

The Securities and Exchange Commission said Tuesday that it has charged two firms with illegally brokering more than $79 million of investments from foreigners seeking U.S. residency through the government’s EB-5 Immigrant Investor Program.

The charges, the first against brokers handling investments in the EB-5 program, follow earlier SEC actions against fraudulent EB-5 offerings.

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Ireeco LLC, originally of Boca Raton, Florida, and its successor Ireeco Ltd., a Hong Kong-based company operating in the U.S., were charged with acting as unregistered brokers for 158 EB-5 investors. The EB-5 program, administered by the U.S. Citizenship and Immigration Services (USCIS), provides a path to legal residency for foreigners who invest directly in a U.S. business or private “regional centers” that promote economic development in specific areas and industries, the SEC states. According to the SEC’s order, Ireeco LLC and Ireeco Ltd. used their website to solicit EB-5 investors, some of whom were already in the U.S. on a temporary visa.

The two companies offered to help potential EB-5 applicants choose the right regional centers. The centers paid the companies commissions of about $35,000 per investor once U.S. Citizenship and Immigration Services approved the green card petition, according to the SEC.

To read the full article by the South Florida Business Journal, click here.

Rules on Foreign Finders Incorportated In Recent SEC Approval

Posted on June 25, 2015 by admin

The longstanding rules on foreign finders – when a brokerage firm can pay transaction-based compensation to a non-registered foreign finder – will be incorporated into new FINRA Rule 2040, effective August 24, 2015.

Rule 2040(c) replaces NASD Rule 1060(b) and NYSE Interpretation 345(a)(i)/03, and provides that a member firm and persons associated with a member firm may pay transaction related compensation to non-registered foreign finders where the finders’ sole involvement is the initial referral to the member firm of non-U.S. customers, and the member firm complies with all the conditions set forth in the rule.

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Based solely on its activities in compliance with Rule 2040(c), a foreign finder would not be considered an associated person of the member firm. However, unless otherwise permitted by the federal securities laws or FINRA rules, a person who receives commissions or other transaction-based compensation in connection with securities transactions generally has to be a registered broker-dealer or an appropriately registered associated person of a broker-dealer who is supervised by a broker-dealer. Member firms that engage foreign finders would be required to have reasonable procedures that appropriately address the limited scope of activities permissible under such arrangements.

Where an arrangement with a foreign individual goes beyond initial referrals, the member firm may register that individual as a foreign associate under NASD Rule 1100. Foreign associates must conduct all of their activities outside the US and cannot engage in any securities activities with US persons. Although deemed an associated person for whom a Form U4 must be filed, a foreign associate is not required to pass a qualifying examination. For arrangements with foreign groups whose activities for foreign customers go beyond the initial referral to the member, registration of a foreign branch may be an alternative. To the extent a foreign finder solicits or negotiates with US persons, entering into a 15a-6 agreement may be a viable alternative.

To read the full article, click here.

Morgan Stanley, Scottrade Settle Insufficient Supervisory Charges

Posted on June 23, 2015 by admin

The Financial Industry Regulatory Authority said Monday that it fined Morgan Stanley Smith Barney LLC and Scottrade Inc. a combined $950,000 for insufficient supervisory systems to monitor the transmittal of customer funds to third-party accounts.

Morgan Stanley was fined $650,000 after Finra found that, from October 2008 to June 2013, three registered representatives in two different branch offices converted a total of about $500,000 from 13 customers by creating fraudulent wire transfer orders and branch checks from the customers’ accounts to third-party accounts. Supervisory failures allowed the conversions to go undetected, Finra said.

Scottrade, which was fined $300,000, didn’t obtain customer confirmations for third-party wire transfers of between $200,000 and $500,000 from October 2011 to October 2013, according to Finra. The agency alleged Scottrade processed transfers totaling about $880 million during that period.

Morgan Stanley, which has around 16,000 brokers and advisers, and Scottrade, which has around 2,000 registered brokers, agreed to the sanctions without admitting or denying the charges.

A spokesman for Scottrade, Whitney Ellis, said in a statement that the firm has resolved the issue after updating its procedures in 2013 and improving the notification process for third-party transfers.

A representative for Scottrade said clients now receive multiple notifications of pending wire transfers, and the appropriate supervisory procedures are in place.

Planet Fitness Sprints to Stock Markets

Posted on June 23, 2015June 23, 2015 by admin

Brokerdealer.com updates that Planet Fitness began a sprint toward the stock markets on Monday, filing for an initial public offering roughly two years after allying itself with a private equity firm.

Planet Fitness Inc. filed for an initial public offering to raise up to $100 million. With its filing, Planet Fitness, a low-cost gym chain, aims to become a publicly traded company in two months or so.

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Founded in its current form in 1992, the company was a pioneer in opening low-cost gyms meant to be friendlier to the average consumer rather than catering to hard-core fitness enthusiasts.Such was the company’s success that it eventually drew in as a partner the private equity firm TSG Consumer Partners, a specialist in consumer brands.

Last year, Planet Fitness reported $37.3 million in profit on $279.8 million in revenue, both up from a year earlier. In the prospectus, Planet Fitness listed a preliminary $100 million fund-raising target, a figure meant to determine listing fees.

It will eventually trade on the New York Stock Exchange under the ticker symbol PLNT.