DWT partner Randy Gainer gave a presentation entitled “How to Improve Data Security and Reduce Potential Liability for Data Breaches.” The presentation focused on the following topics:
- The risks of cyber attacks
- Choosing cost-effective security measures
- Evaluating cyber insurance coverage
Reduce Potential Liability for Data Breaches Randy Gainer, Attorney, CISSP February 12, 2014
Randy Gainer is a partner in the Seattle office of Davis Wright Tremaine. He represents businesses in litigation and in state and federal administrative proceedings after the businesses have suffered data breaches.
I’ve been writing an article on general solicitation, a long one, and doing a lot of research. As part of that, I found the attached SEC No-Action letter that I wanted to share with everyone, because it directly hits on the question of whether “demo days” constitute general solicitation.
This has been a hot button issue for a lot of people.
You might recall that at the open meeting of the SEC’s Advisory Committee on Small and Emerging Companies held on Tuesday, September 17, 2013, that SEC staff refused to answer the question whether demo days constituted general solicitation.
Watch the SEC HEARING
(The key part starts at the 52:00 minute mark.)
Those who made comments to the SEC’s proposed Reg. D rules have also voiced alarm over the rules’ potentially adverse impact on demo days – a great thing in the startup ecosystem. Mitch Kapor had this to say:
Practices that have worked well without incident for decades could suddenly become unintentional minefields for honest startups and sophisticated investors alike. Demo days, where startups present to investors and press, will most certainly be called “general solicitation” by the law firms advising startups (and likely by SEC enforcement as well). This means that some of the most high profile ways new startups raise money transparently may now cause those same startups to go out of business if the penalties are enforced.
Read the attached SEC No Action Letter, Michigan Growth Capital Symposium (May 4, 1995). In the letter, the SEC concurs that presenting companies at the symposium won’t be deemed to have generally solicited. However, there are a number of key predicate facts that the SEC relies upon in reaching that conclusion, including “no specific financing details are a part of presentations made at the symposium and no private placement materials are distributed there…”
It is a helpful no-action letter, but I don’t think it will stop the debate.
Michigan Growth Capital Symposium SEC No-Action Letter (May 4, 1995)
There is an argument going around that the proposed Reg D rules are not that bad because they affect only companies that are going to generally solicit their Reg D securities offerings.
This is simply not true.
The SEC’s proposed rules will adversely affect companies that are not going to generally solicit their offerings as well.
Even companies that don’t generally solicit their offerings are going to be subject to the potential one year penalty box if they miss their Form D filing deadlines. Sure, companies not generally soliciting won’t have to file “Advance Forms D,” but they will still have to timely file Forms D. The 15 day deadline, under the proposed rules, is going to become very real and very painful for companies that miss it.
Companies that are not generally soliciting will also have to complete the same Form D as companies generally soliciting. Under the proposed rules, the Forms D are going to require a lot more disclosure, and take a lot more time and expense to complete. This is another facet of the proposed rules that is not great.
Finally, companies that are not generally soliciting will also have to file terminating amendments to their Forms D, just like companies generally soliciting.
What bad part of the proposed rules will companies not generally soliciting escape? They will escape the following three requirements, which will apply only to companies generally soliciting:
- The requirement to file an Advance Form D at least 15 days before generally soliciting
- The requirement to prominently include lengthy legends on all written general solicitation materials, and
- The requirement to submit all written general solicitation material to the SEC prior to use.
Everyone in the startup ecosystem should care about the proposed rules, regardless of whether they intend to generally solicit or not. This is even more true because of the nebulous nature of what constitutes “general solicitation.” Many, many companies that don’t intend to generally solicit may trip inadvertently and fall into the rules governing companies that generally solicit.