November 13, 2014

Derivatives and Structured Products Law Committee

Today, November 13, 2014, the DSPL Committee of the Business Law Section had an interesting meeting concerning the 2014 ISDA Credit Derivatives Definitions.

Four presenters from Allen & Overy spoke (Shruti Ajitsaria, David Benton, David Lucking and Deborah North). As is usual for the DSPL events, there was a nice crowd, with many familiar faces. Ilene Froom, the committee chair, introduced the speakers, who went right into the changes that the 2014 definitions have made to the 2003 definitions.

Much of the impetus for changes came from problems that arose in Europe. For example, a financial institution's bonds were expropriated by a state government, and because there were no reference obligations able to be delivered into an auction, the credit protection buyers got much less than they thought they had bargained for. This issue has been dealt with in the 2014 definitions, in part through the concept of an asset package that can be delivered in certain cases instead of the reference obligation.

There are changes to the definition of a qualifying guarantee and to the outstanding principal balance of an obligation, and there is the new concept of a standard reference obligation, which is or will be important for credit default swaps that are cleared.

You may want to consider becoming a member of this interesting committee, which has a meeting (with lunch) about once a month at various law firms or other locations.

Micah Bloomfield

May 14, 2014

Lost Profits were recoverable as they constituted "General Damages"

Biotronik A.G. v Conor Medsystems Ireland, Ltd.
Lost Profits were recoverable as they constituted "General Damages"

On March 27, 2014, the New York Court of Appeals decided Biotronik A.G. v Conor Medsystems Ireland, Ltd., finding that lost profits sought by the plaintiff-distributor were indeed "general damages" recoverable pursuant to the damages limitation provision of the parties' contract.

Biotronik had entered into a distribution agreement with the Conor whereby Biotronik would serve as the defendant's exclusive distributor of its coronary stents, known as CoStar. Conor maintained significant direct involvement in the marketing and sale of the stents despite Biotronik's considerable support in the regions it sought to market the product. Their agreement, governed by New York law, included the following familiar damages limitation provision:

"Neither party shall be liable to the other for any indirect, special, consequential, incidental, or punitive damage with respect to any claim arising out of this agreement (including without limitation its performance or breach of this agreement) for any reason."

In 2007, after CoStar fell short in its FDA trials, Conor recalled the stents and paid plaintiff nearly 8.3 million euros and a 20% handling fee, pursuant to the recall obligations under the agreement. Soon after, Biotroniks initiated its action, arguing that its claim for lost profits on the resale of CoStar constituted general damages, falling outside the scope of the agreement's limitation on recovery.

The court acknowledged that "[t]he limitations provision within the contract does not specifically preclude recovery for lost profits, nor does it explicitly define lost profits as consequential damages." In addition, the court, following prior precedent, noted that lost profits from a breach of contract can be either general damages or consequential damages, depending on whether the non-breaching party bargained for those profits and whether they are the "direct and immediate fruits" of the contract.

However, the crux of the court's argument focused on the "natural and probable consequence" determination in qualifying general damages. It reasoned that it must look at a contract in its entirety to determine the probable consequences from a breach to the non-breaching party. The court found that the lost profits were general damages as they would be considered a natural and probable consequence given that the agreement used the Biotronik's resale price as a benchmark for the price Biotronik paid to Conor.

Additionally, the court distinguished this case by noting that both plaintiff and defendant were dependent on the stent's resale for their earnings, concluding that they were effectively acting as a joint venture. This was different from other cases in which the buyer's resale to the third party is completely independent from the underlying agreement. Further, the court found that the pricing formula utilized within the contract created the expected profits, and thus such lost profits need not be explicitly identified in the contract.

The dissent appears to suggest that the decision circumvents the natural meaning of limitation-of-liability provisions, as well as a nearly century old understanding of commercial law now laid out in UCC 2-715(a)(2).

Maxwell Silver-Thompson, Cardozo '15, BLS Law Student Blogger

November 22, 2013

Bankruptcy Code Section 503(b)(9): A Seller's Remedy, but with Potentially

Nearly a decade ago, Congress amended the U.S. Bankruptcy Code to add a new section that was intended to benefit sellers of goods to failing or financially distressed companies. Under this new provision, Bankruptcy Code Section 503(b)(9), a seller of goods is entitled to an "administrative expense claim," for the goods sold and received by the buyer in the 20 days before the buyer's bankruptcy. This administrative expense claim gives the seller priority over other general, unsecured creditors. Although the specific statutory section is quite brief, there are a number of important issues that sellers must keep in mind to be able to rely on Section 503(b)(9) - and a number of important questions involving Section 503(b)(9) that still bedevil the courts.

The Statute

Bankruptcy Code Section 503, which is entitled "Allowance of Administrative Expenses," lists nine kinds of expenses that bankruptcy courts must allow as "administrative expenses," which entitles the creditor holding such an expense to priority of payment. One of those expenses is described in Section 503(b)(9), which was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The text of Section 503(b)(9) seems quite clear. It provides that:

[a]fter notice and a hearing, there shall be allowed administrative expenses . . . [for] the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor's business.

Thus, the statute authorizes an "administrative expense" priority claim for a seller of "goods" that are "received" by a debtor within "20 days" before the debtor's bankruptcy filing in the "ordinary course" of the debtor's business.

Certainly, much of this section - for example, the "20 days" and "ordinary course" requirements - seems rather clear. A surprising amount of litigation, however, has arisen over other provisions of this section. In particular, courts continue to struggle with the question of whether a seller has been selling "goods" within the meaning of Section 503(b)(9) and whether the goods that were sold were "received" by the debtor. Neither "goods" nor "received" are terms that are defined in the Bankruptcy Code.

What are Goods?

In many cases, it is clear whether or not a seller is selling "goods" to a buyer. For example, "services" are not goods and, therefore, the provision of "services" does not qualify a creditor for a Section 503(b)(9) administrative priority.

Although the Bankruptcy Code does not define "goods," the Uniform Commercial Code does. It states that, generally speaking, goods are "all things . . . which are movable at the time of identification to the contract for sale."

This definition, however, can still present difficult issues. For example, recently, the U.S. District Court for the Southern District of New York directed the Bankruptcy Court to further consider whether electricity sold by a vendor to a debtor qualified as "goods" for purposes of Section 503(b)(9). In its decision, the District Court noted that in the Section 503(b)(9) context, courts are in essence evenly split on whether or not electricity is actually a "good".

Rulings such as this make it clear that creditors seeking to rely on Section 503(b)(9) may do so only where they have in fact supplied "goods" to the debtor.

When Does the Debtor "Receive" Goods?

Another issue involving Section 503(b)(9) that continues to arise in the bankruptcy courts with some frequency is whether a debtor has "received" the goods sold by the vendor. Where goods are shipped and delivered to the debtor's warehouse or other facility, the goods certainly are "received." But the debtor's receipt is not as clear where a supplier "drop ships" goods purchased by a debtor directly to the debtor's customers.

In one case, decided last August, the District Court of New Hampshire granted an administrative priority claim to a paper company that sold and shipped goods to the debtor purchaser itself. However, the Court denied the seller an administrative priority claim for goods that it drop shipped directly to the purchaser's customers.

Given these and similar rulings, vendors that are aware of a purchaser's financial extremis but willing to continue dealing with the purchaser might consider avoiding drop-shipping goods directly to the purchaser's customers so that it could get the benefits of Section 503(b)(9) protection.

Questions of Timing

In addition to the 20 day requirement contained in Section 503(b)(9), sellers seeking to assert a 503(b)(9) claim must keep all filing deadlines in mind. Some bankruptcy courts may impose specific deadlines for creditors to file Section 503(b)(9) claims; in other instances, a claim under Section 503(b)(9) may have to be filed with all other claims before the claims "bar date" (i.e. the deadline to file claims against the debtor).

Whatever the case, meeting the deadline is a crucial requirement to be able to assert a Section 503(b)(9) claim. Several years ago, one court denied a Section 503(b)(9) claim to the Goodyear Tire & Rubber Company when it determined that Goodyear had filed its Section 503(b)(9) claim too late.

The important message is that each case - and each court - may have different unique circumstances and requirements, and these deadlines should be assessed and followed so that 503(b)(9) creditors do not waive their rights.


Trade creditors with a claim against a bankrupt company may find more success by asserting a Section 503(b)(9) claim than by trying to "reclaim" the goods they have sold, especially where those goods have been resold or cannot be identified (because, for example, they have been co-mingled or fabricated.) It is important to keep in mind, however, that even where a creditor is able to meet all of the requirements of Section 503(b)(9), the creditor only will have an administrative priority claim that the bankrupt debtor may - or may not - be able to pay. Where a bankruptcy estate is "administratively insolvent," or where the bankruptcy court authorizes a "super priority" administrative priority claim that trumps a Section 503(b)(9) claim, the vendor may find that it is in the same position as the debtor's other unsecured creditors. Still, it is clear that Section 503(b)(9) offers vendors certain advantages, and a supplier that invokes Section 503(b)(9) may be able to put itself in a more favorable position than general unsecured creditors.

November 3, 2013

Fall Meeting Banking Law Committee Part II

Banking Law Committee

Below is an update that was part of the Fall Meeting materials that we unfortunately did not get a chance to discuss. Thanks to Sabra Easterday for her update.

Sabra Easterday, Vice President (Deposits), M&T Bank
Business Law Section Fall Meeting
October 3 to 5, 2013

NYSBA - Banking Law Committee

Set forth below is an update on several new banking laws and regulations in New York (and beyond), as well as updates on some recent regulatory investigations affecting the banking industry. Being a depository lawyer, these updates relate to the depository side of banking (as opposed to the lending side of banking).

New Banking Laws and Regulations

1. New Remittance Transfers Laws
New rules regulating 'remittance transfers' become effective October 28, 2013 . Those rules are found in new Subpart B of Consumer Financial Protection Bureau ("CFPB") Federal Regulation E (which implements the Electronic Fund Transfer Act).

A remittance transfer is defined broadly to include electronic transfers of funds that are sent by consumers in the U.S. to recipients in foreign countries (e.g., international wires and ACH credits). Banks, thrifts, credit unions, money transmitters etc. that provide remittance transfer services will be subject to the new rules (although a 'safe harbor' is offered for those that provide less than 100 remittance transfers per year). Transfers of $15 or less are exempt.

Remittance transfer providers will be required to provide certain disclosures to senders of the transfer (e.g., disclosures of fees, taxes, exchange rate, timing of receipt of the transfer, total amount to be received by recipient etc.) and the CFPB recently issued model disclosure forms. The new rules set forth cancellation and refund rights for consumers (e.g., a right to cancel the transfer within 30 minutes of authorization), error resolution procedures (e.g., a right to file a notice of error within 180 days (240 days in some cases) after the transfer), as well as new liability standards for remittance transfer providers (and their agents).

The banking industry provided substantial public comment to the CFPB on the new rules. Banks were particularly concerned with the proposed liability standards for remittance transfers and with the practical difficulty of disclosing certain information not readily available to the remittance transfer provider (especially in open-network systems). Importantly, the Final Rule that was published in the Federal Register on May 22, 2013:
• made optional the requirement to disclose (i) fees imposed by the recipient institution and (ii) taxes collected by parties other than the remittance transfer provider. Additional disclaimers are required.
• made clear that an error (for which a sender is entitled to certain remedies, such as refund) does not include a remittance transfer provider's failure to deliver the funds transfer amount to a recipient due to the sender providing the wrong recipient account number or recipient institution identifier. Additional provisos and disclosures required.

One of the effects of the new remittance transfer rules was to move the governance of consumer wires from UCC-4A to Regulation E . Accordingly, in 2012, New York's UCC-4A was amended to bring the governance of consumer wires back to UCC-4A (except to the extent inconsistent with the new remittance transfer laws in Regulation E). Approximately 30 other States have now enacted similar changes to their UCC-4A. This was an important change, as UCC-4A sets forth a well established legal framework for consumer wires (in particular, relating to the allocation of liability between banks and customers for unauthorized/fraudulent wires).

2. Changes to ATM Disclosure Laws
NY Governor Cuomo signed into law on August 1, 2013 changes to NY's General Business Law to eliminate the requirement that ATM operators post a physical sign regarding ATM fees on each machine. This brings NY law into conformity with Federal law (i.e., CFPB Federal Regulation E, which was similarly amended in March 2013). Prior to this change, ATM operators were required to disclose ATM fees on the ATM screen or in a paper notice prior to the consumer paying the ATM fee, as well as on a physical sign or sticker on or at the ATM. The changes to these laws were made in response to growing concern in the banking industry over class action law suits being filed against financial institutions for technical breaches of the law, even though consumers had clear notice of the fees on the ATM screen or paper notice prior to the transaction. Several industry associations also reported that law suits were being filed against financial institutions in cases where vandals had removed the disclosure notices on ATMs and then claimed non-compliance by the financial institution .

Current Regulatory Investigations

3. Payday Lending and ACH Debits
On August 6, 2013, the New York Superintendent of Financial Services, Benjamin Lawsky, sent a letter to 117 financial institutions and NACHA requesting that they assist the New York Department of Financial Services ("DFS") to "choke off" ACH system access by the payday lending industry and to provide information to the DFS about steps the financial institution was taking to stop illegal payday loans from entering New York through the ACH network and changes that are necessary within the financial institution and at the ACH network level to stop illegal payday loans . In addition, 35 companies received cease and desist letters from Superintendent Lawsky from offering illegal payday loans to New York consumers.

As background, in February 2013, an article appeared in the New York Times criticizing banks, including J.P. Morgan, Bank of America and Wells Fargo, from enabling payday lenders to withdraw payments automatically from borrowers' bank accounts using ACH debits. Shortly after that article, in March 2013, J.P. Morgan announced that it would change certain internal policies to better protect consumers from payday lenders (including: charging customers only one "returned item fee" per month; making it easier to close accounts, even if there are pending charges; working with NACHA to proactively identify misuse of the ACH system; enhance training around stop payment instructions from customers.) .

4. Payroll Cards
Payroll cards are under investigation in NY! An article appeared in the New York Times on June 30, 2013 suggesting that some workers incur so many fees using payroll cards that their net income ends up being below the minimum wage. On July 3, 2013, NY Attorney General Eric Schneiderman sent letters to twenty of NY's largest employers requesting information about their use of payroll cards (responses were due July 22, 2013). In mid July 2013, Senator Chuck Schumer (D-N.Y.) (as well as Blumenthal, Manchin and 13 other senators) sent a letter to the CFPB and DOL urging them to investigate the fees and practices associated with payroll cards, including whether employers pressure employees to use payroll cards without offering other alternatives and whether an 'opt-out' program is appropriate. In recent years, payroll cards have become a growing alternative for employers as a cost-effective alternative to paper pay-checks and direct deposit. Payroll cards often are used by the un/under-banked who do not have check accounts at banks.

Non-Banking Laws (That Might Affect Banks)

5. Telephone Consumer Protection Act
Changes to the Telephone Consumer Protection Act of 1991 ("TCPA") will become effective on October 16, 2013. The TCPA, amongst other things, restricts telephone solicitations (i.e., telemarketing) and limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages, and fax machines . The new changes to the TCPA will impact the ability of advertisers that offer or market products/services to consumers (which will include banks etc.) to contact consumers by telephone and fax.

Currently, under the TCPA, an advertiser only needs to obtain 'express consent' from the consumer in order to make unsolicited marketing calls to the consumer using an artificial or pre-recorded voice or auto-dialer. For residential landlines, there is an exemption to this requirement where there is an 'established business relationship' with the consumer. For cell lines, guidance published by the Federal Communications Commission ("FCC") in 1992 suggests that the consumer's express consent is provided when s/he provides a cell number when opening an account or applying for a loan.

After October 16, 2013, advertisers will need to obtain "unambiguous written consent" (i.e., prior express written consent) for all autodialed and/or pre-recorded calls or texts sent or made to cell phones and pre-recorded calls made to residential land lines. The 'existing business relationship' exemption mentioned above will no longer apply. The TCPA allows individuals and entities to file lawsuits and collect damages for breaches of the TCPA (e.g., greater of actual damages or statutory damages between $500 and $1500, per violation; treble damages for willful or knowing violations).

Some portions of the new TCPA rules have already gone into effect (e.g., the requirement to keep records of abandoned calls and average no more than 3% for each campaign over a 30-day period; opt-out mechanism to be announced at the outset of the message and be available throughout).

Changes to the Health Information Privacy and Accountability Act of 1996 ("HIPAA") and HITECH Act become effective September 23, 2013 . Among other things, the changes broaden the definition of a 'business associate', apply certain HIPAA regulations directly to business associates and makes business associates directly liable for non-compliance with HIPAA. A business associate is a person or entity that performs certain functions or activities that involve the use or disclosure of protected health information ("PHI") (e.g., patient information) on behalf of, or provides services to, a 'covered entity' (e.g., a health care provider (such as a doctor or hospital), health plan or health care clearinghouse).

Historically, financial institutions have relied on an exception in Section 1179 of HIPAA which exempts certain activities of financial institutions from HIPAA, to the extent that those activities constitute authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for health care or health plan premiums (e.g., cashing checks). However, the new 2013 rules make clear that a financial institution may be a business associate where the institution performs functions 'above and beyond' the payment processing activities, such as performing accounts receivable functions on behalf of a health care provider. Accordingly, financial institutions should review their activities to determine whether or not they are acting as a 'business associate' or 'covered entity' and need to comply with HIPAA.

For example, if a financial institution provides clearinghouse services for their health care clients, they may be a 'covered entity'. If the financial institution performs services for customers in the health care industry and obtain PHI in the process, the financial institution may be a 'business associate' - for example, a financial institution might receive PHI from a customer that is a hospital in connection with the provision of lockbox services to the customer (e.g., patient information included with lockbox remittances sent to the lockbox). If the financial institution, in turn, provides PHI to a vendor, additional obligations under the new HIPAA rules will apply (e.g., a requirement to sign a Business Associate Agreement with the vendor).

Kathleen A. Scott, Chair
New York State Bar Banking Law Committee

2013 Fall Meeting

Banking Law Committee

The chairmanship of the Banking Law Committee passed to me June 1 and I have big shoes to fill - David Glass has been a great chair of the committee and fortunately he remains a member of the committee and has been of great assistance helping me learn the ropes.

At the October 3-5, 2013, Business Law Section Fall Meeting held at the Cranwell Resort in Lenox, Massachusetts, a meeting of the members of the Banking Law Committee (and anyone else who wished to attend) was held on Friday, October 4. The title of the program was "Current Ethical Issues for Banking Law Practitioners" and we had as our distinguished guests Robert Mundheim and Robert Evans III, both of Shearman & Sterling LLP and both experts on ethics issues. The panel and attendees discussed several interesting hypotheticals, each of which raised questions that many of the attendees had seen come up in their own practices. This meeting also provided the opportunity to obtain those all-important Ethics CLE credits that all New York lawyers need. We hope to have Messrs. Mundheim and Evans come back again to a future meeting.

The next formal meeting of the Banking Law Committee will be during the NYSBA Annual Meeting in January 2014. Following up on comments made at the May meeting, when a representative of the Federal Reserve Bank of New York spoke about the FRB's supervisory concerns regarding foreign and large domestic financial institutions that it oversees, I am working at putting together a program at the January meeting that focuses on supervisory issues of community banks, with a panel of state and federal banking regulators to discuss those issues.

Suggestions have been made about having additional meetings during the year that focus on current issues and I am pursuing that suggestion and will be surveying the committee members to determine the format and frequency of such meetings, which we may be able to do via webcast.

Kathleen A. Scott, Esq., Chair

October 25, 2013

Only making "Qualified Mortgage Loans" is not automatically unfair lending.

Phew! That was close. Banks aren't supposed to make certain types of residential mortgage loans unless they evaluate the borrower's ability to repay and decide that the borrower can repay the loan. However, there's a safe harbor for "qualified mortgage loans." The Consumer Financial Protection Bureau defined what is a QML. Borrowers are automatically considered to be able to repay a QML.

But wait!! Is this a wolf in sheep's clothing? A class action waiting to happen? What if a bank only makes QMLs? Is the bank automatically discriminating against the under-class of less fortunate or immigrant or off the books borrowers who can't satisfy the requirements for a QML? The bank regulators and the CFPB issued guidance this week that only offering QMLs is not, by itself, discrimination.

Don't dance around the Maypole at midnight in celebration quite yet. We've heard this before. The proof will be in the pudding. I once had a meeting at the OTS Regional Office in Chicago in the early 1990s where an OTS CRA supervisor actually said that a bank that had a requirement that a borrower show the ability to repay a mortgage loan discriminated against poor people! I suggested to the head of safety and soundness, who was also in the room, that maybe they should caucus and withdraw that statement, but it reflects an attitude among many regulators that may be pervasive at the CFPB. So only time will tell whether on site examiners will honor the guidance or use a QML-only policy as an excuse to dig for discrimination.

You can read the guidance here:

October 22, 2013

New Court of Appeals decision on when nonsignors may have to arbitrate.

In Belzberg v. Verus, decided by the NY Court of Appeals on October 17, 2013 (2013 N.Y. LEXIS 2860), the court faced the question of whether a nonsignor to a contract that included an arbitration clause is required to arbitrate if it received a benefit from the contract. Whether the nonsignor is bound by the arbitration clause is fact-specific and depends on whether the nonsignor received a direct or only indirect benefit from the contract. The court stated, "The guiding principle is whether the benefit gained by the nonsignatory is one that can be traced directly to the agreement containing the arbitration clause." The court recognized that it may be difficult to distinguish between direct and indirect benefits. However, it behooves all attorneys with a business practice not to assume that since their client did not sign the arbitration agreement, the client will not have to arbitrate.

September 29, 2013

SEC's New General Solicitation Rule in Private Placements

Reprinted from the State Bar News feature on the Business Law Section:

By Carol Spawn Desmond

In law school, we learned the general rule that "public offerings" of securities require registration with the Securities and Exchange Commission. There were exceptions, many blessed by the safe harbors of Regulation D, but the lynchpin was always "private"--not "public"--offerings.

That all changed with the SEC's amendment of Regulation D to permit "general solicitations" of private offerings, through adoption of new Rule 506(c). Anyone can be solicited, so long as each ultimate purchaser is an "accredited investor."

The "effective date" of Rule 506(c) is Sept. 23, 2013. Here are some high points:
1. Not everything changes. Section 4(a)(2) of the Securities Act is unchanged and the rest of Regulation D remains a safe harbor. Current Rule 506 (unlimited offerings to accredited investors) is now Rule 506(b).

A failed Rule 506(b) issuer still might be able to rely on Section 4(a)(2) for exemption from registration.

However, the same is not true for issuers under Rule 506(c): they are not afforded that alternative protection from any violation.

2. Big changes to general solicitation. So long as: (a) all other terms of Rule 501 and Rule 502(a) and (b) are satisfied, (b) all purchasers are accredited investors, and (c) the issuer takes "reasonable steps to verify" that all purchasers are accredited investors, new Rule 506(c) permits issuers to engage in general solicitation in offerings. Private fund issuers under Sections 3(c)(1) and (7) of the Investment Company Act can also rely on Rule 506(c).

If an ongoing offering uses Rule 506(c) after the effective date, the earlier exempt portion will not be compromised by using general solicitation.

3. What are "reasonable steps to verify"? These can be:
(a) "Principles-based:" based on facts and circumstances, such as (i) nature of purchaser, (ii) amount and type of information available about the purchaser, and (iii) type and nature of the offering; or

(b) From a non-exclusive "safe harbor" list: (i) IRS forms; (ii) current documents showing assets (bank and brokerage statements, etc.) and liabilities (credit reports); (iii) third-party confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a CPA that the third party has taken reasonable steps to verify that the purchaser is an accredited investor; and (iv) certification from a current investor of its qualification.

If the issuer took reasonable steps to verify accredited investor status and had a "reasonable belief" in the purchaser's status at the time of sale--and does not actually know the purchaser does not qualify--the issuer can rely on that, even if the investor does not qualify as an accredited investor.

4. Who can't make general solicitations? Issuers controlled by "felons and other 'bad actors'" have limited reliance on either Rule 506(b) ("old" Rule 506) and Rule 506 (c) ("new" Rule 506).

If the disqualifying events occurred before September 23, an issuer need only disclose them if those occurring afterward prohibit an issuer from relying on Rule 506. Disqualification can be "cured" by the levying authority.

The prohibition applies if the issuer, any of its predecessors or affiliates, or any of its directors, executive officers and officers who participate in the offering, general partners or managing members; anyone owning 20 percent or more of outstanding voting equity securities; and for pooled investment funds, the funds' investment managers and their principals have had a disqualifying event.

Disqualifying events are: (a) certain criminal convictions, (b) certain court injunctions, (c) final orders of certain regulators, (d) commission disciplinary orders, (e) certain SEC cease-and-desist orders, (f) suspension or expulsion from self-regulatory organization membership or association with an SRO member, (g) stop orders and orders suspending exemptions under Reg A, and (h) certain U.S. Postal Service orders.

5. How "general" is solicitation? Rule 506(c) permits public broadcast to anyone--and broker-dealer registration is not required if a Rule 506 platform is used.

For issuers using registered broker-dealers for Rule 506(c) sales, Financial Industry Regulatory Authority, Inc. (FINRA) rules will govern such broker-dealers' communications.

Desmond, of New York City, is counsel at Satterlee Stephens Burke & Burke LLP. She practices in corporate law, labor and employment and public finance.

September 26, 2013

Securities Law Committee submits comment to the SEC

On September 23, the Securities Regulation Committee of the Business Law Section of the NYS Bar Association filed a formal comment letter with the Securities and Exchange Commission on its proposal to revise Regulation D and amend Form D regarding private offerings of securities that are exempt from registration. The comment letter, which represents the collective effort of committee members Peter W. LaVigne, Anastasia T. Rockas, Kristine M. Koren, Philip B. Bauch, Robert E. Buckholz, Carol Spawn Desmond, Jennifer Juste and Mitchell J. Rotbert, is a comprehensive commentary on some of the problems that exist with the SEC proposal and the risks that it creates.

If you would like to review the letter, it is now available on the SEC Web Site at:

December 21, 2012

TechVentureLaw Monthly Update: powered by The Technology & Venture Law Committee

See below for this month's links to recent news and commentary on rapidly evolving Technology and Venture Law brought to you by the leadership of the Technology and Venture Law Committee. Read on for info that affects your livelihood and practice.

If you have suggestions for content to be included in our update, please email Vanessa Kaster, Blog Curator, at or David Caplan, Committee Chair at

Firms Beef Up Tax Practices in Silicon Valley as IRS Increases Scrutiny of IP Assets
By Amy Miller: LAW.COM
"Tax lawyers say they're already seeing bigger IRS teams at audit reviews and dispute resolutions involving high-tech companies" more about their suggestions.

Uncertainty in the Cloud: Changing Requirements for Disclosing Customer Data
By James B. Baldinger and Chas Short: Carlton Fields
"The explosion in the number of companies providing services that store data ''in the cloud'' provides new challenges for applying outdated laws to new technologies." This article examines the difficulties presented by the lack of clear legal guidance on disclosure of customer information by these companies.

CLE Free Webcast- Provide Legal Assistance to People Affected by Superstorm Sandy
This NYSBA CLE Webcast is FREE if it is viewed and the CLE form submitted before January 31, 2013.

Thanks for reading,

TechVentureLaw Leadership Team,

Vanessa Kaster, Blog Curator
David Caplan, Committee Chair
Shalom Leaf
Sanjay Gandhi
Richard Weltman
Vacilios Angelos
Matthew Asbell
Heather John