Recent Answers to Securities Law Questions

Christopher N.

Answered Jun 13, 2025

The short answer, as with all legal questions, is: it depends. You can certainly propose modify or be reased from your obligations, and depending on the company, your circumstances, your relationship, and their financial position, the company may be willing to entertain accomodations. It doesn't hurt to ask. Be prepared, however, for "penalties," which could mean the loss of your entire investment, significant reductions in the amount of your investment, etc. You may want to consider approaching other investors to see they would be willing to purchase some or all of your stake -- perhaps at a greater value than the company would offer. We highly recommend you consult with a business or securities attorney to be advise you the specifics of your agreement and explore exit or other strategies. Good luck!

John B.

Answered Jun 3, 2025

Raising funds through an ICO is legally possible —but only if you navigate securities laws, money‐transmission rules and (often) state “blue‐sky” requirements. Below is a roadmap to the U.S. legal framework you must consider; I’ve included statute citations and SEC guidance where relevant. 1. Determine Whether Your Token Is a “Security” Key Point: If your token meets the definition of an “investment contract” under U.S. law, it’s a security. Selling a security to U.S. investors without registration (or a valid exemption) violates the Securities Act of 1933 and the Securities Exchange Act of 1934. Conduct a “Howey analysis” for your token. Retain counsel to document why—factually and legally—you believe it’s not a security (if that’s your position). But be prepared that the SEC will likely view it as a security offering. 2. If It’s a Security, Register or Find an Exemption Choose the exemption that best fits (e.g., 506(c) if you have only accredited investors and want to market openly). File Form D for Reg D, or engage an SEC-registered crowdfunding portal for Reg CF, or go through Form 1-A for Reg A+. Each has different reporting burdens and limitations. 3. State (“Blue‐Sky”) Securities Laws Even if you rely on a federal exemption like Reg D Rule 506, most states impose their own registration or notice filings. For each state where you permit a sale, either file the required Form U-2 (for 506 offerings) or register/claim exemption. Most startups rely on the uniform notice procedure under 506 to simplify compliance. 4. Anti-Money Laundering (AML) / Know-Your-Customer (KYC) Rules Even if you structure your ICO as a non-security (which is rare), you must still comply with anti-money-laundering laws if your token is considered a “virtual currency” under FinCEN’s rules. If you accept USD (or other fiat) in exchange for tokens, register as an MSB with FinCEN, build out an AML compliance program, obtain state money-transmitter licenses where required (e.g., New York BitLicense), and integrate a robust KYC/AML vendor at token sale. I have been heavily involved in this space since 2017 - feel free to reach out John@BenemeritoLaw.com

Danny J.

Answered Dec 26, 2024

Here are the top 5 most important provisions in a Private Placement Subscription Agreement: 1. Investment Details (number of shares/units, price, total amount) 2. Investor Representations and Warranties (accredited investor status, risk understanding, etc.) 3. Company Representations and Warranties (accuracy of information, compliance, etc.) 4. Transfer Restrictions (limitations on selling or transferring securities) 5. Use of Proceeds (how the company will use the invested funds) It's important to note that there are at least up to 12 key provisions to consider in a comprehensive Private Placement Subscription Agreement. In addition, each agreement can have unique terms that require careful consideration unique to the deal or industry it's for. The specific language used in these clauses can significantly impact your rights and obligations as an investor. Given the complexity of these agreements and the potential risks involved in private placements, it would be prudent to have a thorough legal review before signing. As an experienced securities attorney, I could: 1. Analyze the specific terms of your agreement 2. Explain how each provision may affect your investment 3. Identify any unusual or potentially unfavorable terms 4. Advise on negotiating more favorable conditions, if necessary 5. Ensure the agreement complies with relevant securities laws Would you like to discuss your specific Private Placement Subscription Agreement in more detail to ensure you're making a fully informed decision about this investment opportunity?

Danny J.

Answered Dec 14, 2024

So to answer your question, yes, certain companies can be exempt from filing SEC reports if they meet specific criteria. This area of securities law is nuanced and can significantly impact a company's regulatory obligations and costs. Let me outline some key points for you: 1. **Small Reporting Company (SRC) Status:** - Companies with public float less than $250 million or annual revenues less than $100 million may qualify for scaled disclosure requirements. 2. **Emerging Growth Company (EGC) Status:** - Available for companies with less than $1.07 billion in annual gross revenues. - Provides certain disclosure and regulatory relief for up to five years after IPO. 3. **Private Company Exemptions:** - Companies with fewer than 2,000 shareholders of record (or 500 non-accredited investors) may be exempt from registration. 4. **Foreign Private Issuer Exemptions:** - Non-U.S. companies may have different reporting requirements. 5. **Rule 12h-3 Suspension:** - Allows suspension of reporting under certain conditions, like having fewer than 300 shareholders of record. While these exemptions can provide relief from full SEC reporting requirements, determining eligibility and maintaining compliance can be complex. Factors such as company size, structure, shareholder composition, and future growth plans all play crucial roles in this determination. It's important to note that even if exempt from full reporting, companies may still have obligations under state securities laws or to their shareholders. Additionally, the benefits of exemption should be weighed against potential drawbacks, such as reduced access to capital markets or decreased investor confidence. Given the complexities and potential consequences of misapplying these exemptions, it would be prudent to conduct a thorough analysis of your specific situation. Would you like to discuss your company's particulars to determine which exemptions, if any, might apply and how to strategically approach your SEC reporting obligations?

Thaddeus W.

Answered Aug 11, 2023

Thanks for the interesting question. There may be some conflation of issues here. A few points may help to clarify -- 1. A SAFE and a Note are different animals. Notes are debt instruments and, accordingly, usually have an interest component. SAFE's are not debt and so do not accrue interest. Convertible Notes and SAFE's are similar in that they both typically convert into preferred stock when the company **later** issues preferred stock. Also, Convertible Notes and SAFE's are often issued without regard to a company's then-current valuation. 2. You said your company issued SAFEs / Notes "as part of" a Series A funding. That's not legally impossible, of course, but it would be unusual, so it would be helpful to make sure we are using the same "glossary" of terms. Typically, the phrase "Series A funding" refers to a company's issuance of Series A Preferred Stock; such transactions involve putting a value on the company so that the Series A stock can be priced. Series A rounds often are preceded by the company issuing Convertible Notes or SAFE's without a valuation of the company (that is, the company and investors "kick the can down the road" to a later time when the company's operating history can justify a valuation). Then, when the Series A round occurs and shares of Series A are priced based on the company valuation, any pre-existing Convertible Notes and SAFE's convert into shares of Series A preferred stock at a conversion price that is equal to the price paid by the Series A purchasers, minus the discount that the Convertible Notes or SAFE's give to their holders. (NOTE: these days, often there is a round of preferred stock sold BEFORE Series A, called Series Seed. This is not required, but common. Sometimes SAFE's or Notes are issued between Series Seed and Series A, but, again, it would be the odd investor who purchased a SAFE or a Note in the same financing round in which preferred stock is sold.) 3. The implications of SAFE's and notes can be several. One of the biggest is their impact on the company's capitalization table ... that is, on the ownership interests of other shareholders, especially the founders. The terms of each Note or SAFE will determine their impact when they convert, especially if they have a "valuation cap" ... which is a provision by which an effective discount is given to the holder of the SAFE / Note. Valuation caps can result in more dilution to the founders and other pre-existing shareholders than they might expect, depending on the actual valuation of the company when these Convertible Notes and SAFE's do convert. 4. If you issued Convertible Notes or SAFE's as part of a Series A preferred stock round, the investors purchasing the Series A would have to have known about and approved of it. Their lawyers would have certainly raised eyebrows and asked questions. If these Convertible Notes / SAFE's were issued outside of the knowledge of the Series A investors, this would be expected to be problematic for the company, and possibly a breach of the Series A investment documents, or even a violation of certain securities laws. But, if all was approved by the investors, no problem. 5. Another implication worth noting is that since Convertible Notes are debt, they typically would be carried on (shown in) the company's balance sheet. Investors in Series A round always or nearly always have Information Rights to see the company's financial statements and be kept current on changes. Normally the company would have a contractual obligation to provide quarterly, if no monthly, financial reports and updates to Series A investors. These reports should include all information about SAFE's and Notes. 6. It should also be noted that Series A investment documents typically restrict the company from issuing many types of new securities without the approval of what these docs often call the "Requisite Holders." This is a defined term in the Series A investment docs (normally in the company amended and restated Charter), and is defined as the Series A holders that hold at least a stated number (e.g., a majority) of all of the Series A shares sold in the round. Note that these answers are not and should not be taken as legal advice for your particular situation. You should retain qualified legal counsel to have a formal lawyer-client relationship and your lawyer should review all relevant information. But, these concepts here are pretty fundamental. ~Thaddeus Wojcik, Wojcik Law Firm, PC

Thaddeus W.

Answered Aug 11, 2023

Good question! Typically, a stock split will result in an appropriate adjustment to an option award so that, after the adjustment, the option holder (you, in this case) is "made whole" -- that is, you are effectively in the same place economically (as far as this option is concerned) after the split with the option as you were before. If you look at your company's Stock Plan (the plan under which your options were authorized and granted to you), you will probably find a section called "Changes in Capitalization." (Or, you can search to document for the word "split" and may be able to find the governing provision that way.) The provision might be included in your Stock Option Agreement, but typically it is covered in the Plan. Anyway, the provision (wherever it is located in your documents) would normally say something along the lines of the following: "In the event of a stock split (and other events), the following will occur: (i) the numbers and class of shares covered by your option award, (ii) the exercise price per share of each outstanding option, and (iii) any applicable repurchase price per share issued under any option award, will be automatically proportionately adjusted in the event of a stock split (or other event)." (Usually the language is even more "legalesey" but that's pretty much the jist of it.) Of course, its impossible to say for sure in your situation (or in any other specific situation) without seeing the relevant documents and knowing all other relevant details, but that would be the typical approach.