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Jacko Law Group Blog

Advances in Technology May Prompt the SEC into Revising Securities’ Registration Requirements

In November of 2009, two advertising executives, and longtime fans of Pabst Brewing Company (“PBR”), attempted to purchase the company. The advertising executives made offers for the company, but could not approach the $300 million asking price. In order to raise capital for the buyout, the advertising executive utilized “crowd funding.” Crowd funding is the use of social media and the internet to organize a large group of individuals to achieve a common goal, in this instance, to raise capital for the purchase of a brewery. Accordingly, the advertising executives decided to solicit online pledges in exchange for a “certificates of ownership” and beer equal to the amount pledged. To that end, the advertising executives established the website to facilitate and centralize their fundraising efforts. They also formed a FaceBook page and Twitter account for to help generate interest and publicity for the buyout. Shockingly, the two advertising executives ultimately received pledges of $200 million from over five million people. While the $200 million dollars was not enough to purchase PBR, it was enough to catch the attention of the Securities and Exchange Commission (“SEC”), who in June of this year issued a Cease and Desist Order[1] against the two advertising executives for violation of federal securities laws.

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SEC Whistleblower Program Now In Effect

With its new whistleblower program officially becoming effective on August 12, 2011, the SEC launched a new webpage for people to report violations of the federal securities laws and apply for a financial award.

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Massachusetts Adopts New Regulations Governing Use of Expert Networks

Beginning December 1st of this year hedge fund managers, private equity firms and investment advisers doing business in Massachusetts will need to have policies and procedures in place to address that state’s new regulations aimed at overseeing the use of expert network firms. Expert networks are intended to connect institutional investors, hedge funds, investment advisers and others with industry specialists and consultants, helping them gather data to make investment decisions. The adoption of these regulations makes Massachusetts the first state in the Union to have rules overseeing these relationships.

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Considerations for Structuring Finders Arrangements

Hedge funds, private equity funds, venture capital funds and other types of private funds commonly utilize third parties to promote their funds and raise capital from potential investors. These third parties are commonly referred to as “finders.” When entering into arrangements with finders, private fund managers should carefully consider the structure of this relationship, particularly if the finder is not a registered representative. Increasingly, the SEC and FINRA are focusing on whether or not a finder is acting in the capacity of an unregistered broker. Section 15 of the Securities Exchange Act of 1934, as amended, defines a "broker" as any person engaged in the business of effecting transactions in securities. As the term “effecting transactions in securities” is open to interpretation, the SEC has added some clarity to this term through a myriad of SEC No-Action Letters and enforcement actions. Factors the SEC uses to determine whether a finder is really acting as an unregistered broker include:

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