I was fortunate enough to receive a copy of the latest (sixth) edition of Securities Law and Practice Deskbook by Gary M. Brown. This is not a book for everyone. This is a concise summary of the entire body of the securities law, and is written for the securities attorneys. It serves as a great reference book especially for those lawyers who do not have the time to read endless treatises where most of the text is in the footnotes. This is a book of answers. The information is presented in a concise, well-organized manner, and is written in “plain English”. I would particularly like to acknowledge the helpful tables summarizing certain rather nuanced rules, such as Table 3-1 that provides a summary of communication rules during the IPO’s pre-filing, waiting and the post-effective periods; Table 6-1 that lists all regulation exemptions available to companies raising capital; and in particular Table 7-1 that consists of a Rule 144 decision tree (a great tool to have). And what is truly important, it is updated with the latest information (or almost the latest, since as of the date of this writing, the SEC has already adopted the amendments relating to general solicitation and advertising in Rule 506 offering).
I find that for the last decade or so, the U.S. securities laws have been one of the fastest evolving areas of the law (just think about the Regulation FD of 2000, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Jumpstart Our Business Startups Act of 2012), not to mention numerous regulations and guidance adopted by the SEC throughout these years. Many of us, securities attorneys, are frankly struggling to keep up with the new developments. Missing a key development may become a costly mistake. Therefore, Securities Law and Practice Deskbook is a must-have for those attorneys who do not want to be left behind.
I’d like to add that Mr. Brown does not only provide an accurate and concise overview of the securities laws and regulations, but also adds valuable commentary. For example, consider his discussion of Rule 504 of Regulation D in Section 6:5.2. The whole chapter 6 is about the Securities Act registration exemptions. The chapter covers the current and proposed exemptions, often providing background information on how particular exemptions came about. Mr. Brown correctly points out that Rule 504 of Regulation D has been underutilized in the market, even though the requirements and limitations of the Rule are few. Although the offering amount is limited to only $1,000,000 per year, the Rule does not limit participation to accredited or sophisticated investors. Nor does it limit the number of investors or require any disclosure documents. The only two limitations are: the Rule generally does not permit solicitation or advertising, and the offering must be done in compliance with applicable Blue Sky laws. It appears that the Rule may be used by startups to raise seed rounds of capital, yet I know of many securities attorneys who would not work on a Rule 504 offering due to high degree of risks involved. Such capital offerings by startups or “fledgling ventures” tend to post the most risk to investors, because the companies are still in the early stages of development. Also, since investors are not accredited or sophisticated, it cannot be assumed that they will be able to understand the risks involved in such highly speculative investments. Therefore, Rule 504 offerings are subject to liability and antifraud provisions of the Securities Act and the Exchange Act, so providing a detailed disclosure document to investors and limiting investors to those who can “fend for themselves” seem like reasonable steps to take. But then, why not use Rule 506 to begin with (especially given that securities issued under Rule 506 are exempt from state regulation)?
As Mr. Brown point out, another reason why Rule 506 is preferable is because, unlike Rules 504 and 505, Rule 506 is a safe-harbor rule that exists along with the private placement exemption provided in Section 4(a)(2) of the Securities Act. Rules 504 and 505 are not safe-harbor rules because Section 3(b)(1), under which they were promulgated, provides no statutory exemption outside the rules. Consequently, if a Rule 506 transaction is attempted but fails, the requirements for the basic private placement exemption under Section 4(a)(2) may still be met. But when a Rule 504 or 505 transaction fails, the issuer has nothing in Section 3(b)(1) to fall back on.
These are just examples of the valuable information contained in Securities Law and Practice Deskbook. Thank you, Mr. Brown, for sharing your knowledge and insights with us.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.