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Bryan Sullivan Quoted in Yahoo! News Article on Donald Sterling
Category: News, Press | Monday, April 28th, 2014 | Comments Off on Bryan Sullivan Quoted in Yahoo! News Article on Donald Sterling
Bryan Sullivan was quoted in Daniel B. Wood’s article “Could NBA really force out Donald Sterling over alleged racist remarks?”
Deadline, Hollywood Reporter, Variety and The Wrap Cover James v. Levy, et. al.
Category: News, Press | Tuesday, April 22nd, 2014 | Comments Off on Deadline, Hollywood Reporter, Variety and The Wrap Cover James v. Levy, et. al.
Several Hollywood trades ran stories about the firm’s case, James v. Levy, et. al., being handled by Devin McRae and Michael Jones.
Here is a list of publications covering the case:
Stephen Ma Pens Article on Crowdfunding Success Story Oculus VR
Category: Press, Publications | Friday, April 18th, 2014 | Comments Off on Stephen Ma Pens Article on Crowdfunding Success Story Oculus VR
Early Sullivan partner Stephen Ma was invited to write an article titled “Can crowdfunding handle success?” by The Los Angeles Daily Journal. Ma’s article appears in the paper on April 3, 2014.
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Can crowdfunding handle success?
By Stephen Ma, Early Sullivan Wright Gizer & McRae LLP
Oculus VR, recently acquired by Facebook for $2 billion, is arguably the biggest success story in crowdfunding’s short history. Oculus is a virtual reality company, based in Southern California, which raised over $2.4 million in 2012 via Kickstarter. The $2.4 million came from thousands of supporters pledging from $10 to $5,000, or more. The individuals pledging funds received a variety of items, including Oculus posters (for a $15 pledge), T-Shirts (for $25), prototype products (for $275), and visits to Oculus’ headquarters (for $5,000).
One might think that Oculus’ supporters would be tickled pink when learning about the $2 billion acquisition by Facebook. The positive reactions to the acquisition, however, were countered by a significant amount of negative feedback from Oculus supporters objecting to the deal:
- “I feel used. So frustrated right now. That is uncalled for…”
- “I think I would have rather bought a few shares of Oculus rather than my now worthless $300 obsolete VR headset.”
- “This is not what I backed this project for.”
- “So Oculus, I backed the original Kickstarter for $10… I’d like my $8200 (.00041%) of that $2 billion Facebook deal now, please.”
- “I was extremely optimistic for the future of this product and the company behind it, and this is how I’m repaid for my investment? Incredibly disappointing.”
There does not seem to be any dispute that these pledges were donations to Oculus, rather than equity or loans. But many of those objecting to the $2 billion acquisition contend that it was somehow unfair to Oculus’ Kickstarter backers, despite the fact that these backers did not have any ownership rights or contribute to Oculus’ operations or management in any way. As a lawyer who has been involved with both start-up companies and securities litigation, I suspect that some enterprising lawyers are now investigating possible ways to bring a lawsuit against Oculus and/or Kickstarter. Regrettably, recent news reports have even confirmed that Oculus employees have received death threats.
What exactly is the cause of all this controversy? President John F. Kennedy once said: “Success has many fathers, while failure is an orphan.” Despite disclosures by Oculus and Kickstarter that these pledges are donations only, many of these backers apparently view themselves as Oculus “investors,” who deserve to be compensated. Perhaps many of these early supporters now realize how much money (e.g., billions) is involved with recent acquisitions such as Oculus ($2 billion), Nest Labs ($3.2 billion) and WhatsApp ($19 billion).
The problem is that many supporters of crowdfunding apparently do not realize (or refuse to acknowledge) that the so-called “New Economy” is still governed by wellestablished legal authority. For example, Kickstarter backers cannot sue for breach of contract when there is no written or oral agreement to provide ownership or other rights to the company. They cannot sue for breach of fiduciary duty when the company has made clear that the Kickstarter backers are not fiduciaries. They cannot sue for securities fraud or any other type of fraud absent a showing of, among other things, fraudulent intent, material misrepresentations, or material omissions.
Another problem is that some of these early backers seem to equate their emotional “investment” in the company with some legal or equitable stake. In the course of my work, clients often ask me why lawyers insist on written documentation when there is “no way” anyone could misunderstand or dispute the terms of an agreement, a transaction, or the management of a company. Typical questions include: Why do we need an operating agreement when the founders of the company can make decisions as we go forward? Why do we have termination provisions when we just started this company? Why do we need to make all of these disclosures when everyone understands that these are only donations?
The answer is simple: Money changes everything.
Stephen Ma is a partner with Early Sullivan Wright Gizer & McRae LLP.
Source: Los Angeles Daily Journal
Bryan Sullivan Quoted in MainStreet Article on Yelp, TripAdvisor
Category: News, Press | Thursday, March 6th, 2014 | Comments Off on Bryan Sullivan Quoted in MainStreet Article on Yelp, TripAdvisor
Bryan Sullivan was quoted in Robert McGarvey’s March 6, 2014 MainStreet article titled “Before You Get Sued: Read Prior to Posting at Yelp, TripAdvisor.”
Steve Ma Quoted in Law360 Article Titled “Proskauer, Chadbourne Could Face Billions In Damages”
Category: News, Press, Uncategorized | Friday, February 28th, 2014 | Comments Off on Steve Ma Quoted in Law360 Article Titled “Proskauer, Chadbourne Could Face Billions In Damages”
Steve Ma was quoted in Stephanie Russell-Kraft’s Law360 article titled “”Proskauer, Chadbourne Could Face Billions In Damages.”
Law360, New York (February 26, 2014, 10:16 PM ET) — The liability headache has only just begun for Proskauer Rose LLP and Chadbourne & Parke LLP, which now face potentially billions of dollars in damages after the Supreme Court ruled Wednesday that victims of Robert Allen Stanford’s Ponzi scheme can sue the law firms over their alleged role in the scheme.
In a 7-2 decision Wednesday, the Supreme Court resolved a circuit split over the application of the federal Securities Litigation Uniform Standards Act, which bars state-law class actions alleging fraud “in connection with” the sale of a security traded on a national exchange. The high court upheld a Fifth Circuit ruling that the victims’ claims were not barred by SLUSA because the alleged misrepresentations about covered securities were only “tangentially related” to the Ponzi scheme.
According to the class of investors, the firms helped Stanford falsely represent that its certificates of deposit, which were not covered by SLUSA, were backed by safer, covered securities.
The ruling marked a significant defeat for Proskauer Rose and Chadbourne & Parke, putting a class action against them back into play in a Texas district court, where they will be subjected to “more pro-investor” Texas securities laws that let plaintiffs sue gatekeepers for their roles in aiding and abetting securities fraud, according to attorney Edward C. Snyder, who represents the plaintiffs.
“For the firms, this means significantly more legal costs, negative publicity, and, potentially, depending on how the cases go, more exposure,” said H. David Kotz, who authored the report on Stanford’s Ponzi scheme when he served as inspector general of the SEC.
Attorneys were reluctant to speculate on the amount of damage the Stanford liability case could do to Proskauer Rose and Chadbourne & Parke, but the worst-case scenario — damages in the billions — could be debilitating, if not worse. The investors have argued that Stanford wouldn’t have been able to sell them the fraudulent securities without the help of Proskauer Rose and Chadbourne & Parke, which Houston-based litigator Tom Ajamie finds difficult to dispute
“If Stanford didn’t have lawyers, the fraud couldn’t have been committed, period,” Ajamie said. “Lawyers are integral parts of financial fraud and they need to be held accountable for what they do.”
Having passed the “major roadblock” of a Supreme Court appeal, the newly emboldened investors can now seek recovery of the remaining 99 percent of the $5 billion they sunk into certificates of deposit administered by Stanford’s foreign bank, Stanford International Bank Ltd., Snyder said.
“These cases have been stymied for going on five years because of this SLUSA issue that was raised on a motion to dismiss,” Snyder said. “We will likely ask the court to allow us to go ahead and proceed with discovery now.”
In separate statements Wednesday, representatives for both Proskauer Rose and Chadbourne & Parke stressed a reading of the court’s decision as a “narrow procedural” issue, saying they still plan to fight for the case’s dismissal on other grounds.
Nevertheless, the firms’ SLUSA defense was a “seemingly strong procedural defense that is now wiped out,” according to Kotz.
The two firms are among a slew of secondary actors now facing class action claims brought by Stanford investors in Texas federal court. Suits against Willis Group, Greenberg Traurig LLP, Hunton & Williams LLP, Pershing, BDO Seidman, Toronto Dominion, Societe Generale SA, HSBC Holdings PLC, Trustmark Corp., Bank of Houston, and Adams and Reese LLP are all set to pick up again now that the high court has weighed in, according to Snyder.
While firms previously took comfort in the Supreme Court’s 2008 decision in Stoneridge Investment Partners v. Scientific-Atlanta, which held that “aiders and abettors” of fraud cannot be held secondarily liable in private federal suits, that may no longer be the case, according to John Massaro, partner at Arnold & Porter.
“That case provided a measure of comfort and protection to those gatekeepers and this signals that state courts and state causes of action are going to be available [to plaintiffs] going forward,” Massaro said.
But Wednesday’s decision is a reminder that secondary actors with deep pockets — like law firms and insurance brokers — should be aware of their liabilities and watch closely what clients they take on, attorneys say.
“The SEC has said [gatekeepers] have an obligation not just to clients, but to their profession,” said Stephen Ma, partner at Early Sullivan Wright Gizer & McRae LLP. “If there is an alleged fraud you have to do something about it, but what does ‘something about it’ mean? Those are not easy calls to make.”
While the long-term ramifications for Chadbourne and Proskauer remain to be seen, other firms need to grapple with these ethical questions before it’s too late, according to Larry Gabriel of Ezra Brutzkus Gubner LLP.
“You can’t just put statements out there without exploring the bona fides of a client’s business operation,” he said.
–Editing by Elizabeth Bowen and Chris Yates.
All Content © 2003-2014, Portfolio Media, Inc.
Scott Gizer Quoted in “Newest Property-Secured Bonds Invite Scrutiny”
Category: News, Press | Wednesday, February 26th, 2014 | Comments Off on Scott Gizer Quoted in “Newest Property-Secured Bonds Invite Scrutiny”
Scott Gizer was quoted in Kaitlin Ugolik’s Law360 piece titled “Newest Property-Secured Bonds Invite Scrutiny,” which appeared in the national publication on February 20, 2014.
Law360, New York (February 20, 2014, 9:26 PM ET) — The Blackstone Group LP’s recent groundbreaking move to sell bonds secured by single-family rental homes may have created the next securitization blockbuster, but attorneys say the product could attract the same type of litigation that has plagued the commercial and residential mortgage-backed securities markets.
Blackstone is among a growing group of entities that amassed large numbers of foreclosed homes after the crisis and are turning them into profitable rentals. Now some are hoping to take that profitability one step further, extending loans secured by these single-family homes and securitizing them.
This process offers benefits both to players like Blackstone and to smaller landlords that own groups of single-family rentals and can’t get traditional lenders to lend against their assets. Blackstone’s debut product — sold to a syndicate led by Deutsche Bank AG — has been very well- received, but attorneys caution that many questions remain unanswered, and REO-to-rental- backed bonds could pose litigation risks.
“If there is a loss caused by these securitizations, someone is going to be looking to Deutsche Bank and Blackstone, or whoever is providing the bond, for recoupment,” said Scott Gizer of Early Sullivan Wright Gizer & McRae LLP.
Blackstone’s $480 million deal, in which it pooled 3,200 homes owned by its portfolio company Invitation Homes and used them to secured a single loan that it then securitized, made waves as the first of its kind.
Several other opportunistic real estate investment companies, including American Homes 4 Rent and Colony Capital LLC, are expected to follow suit, but they are treading lightly as the new product is assessed by the market and investors.
Blackstone and its partners have not been targeted by any litigation related to the deal, announced in October. But Gizer, who represents large and small companies in disputes involving distressed assets and foreclosures, said that going forward, REO-to-rental-backed bonds may face some of the same litigation issues as CMBS and RMBS did after the crash.
Potential litigation would likely center on questions about representations and warranties regarding the creditworthiness of the renters and the value of the homes.
Renters are not necessarily the best long-term prospects, Gizer said, and a standard will have to be set for which properties — and therefore which renters — to include in securitized pools.
The value of rental income can be volatile as well. On Wednesday, Morningstar Inc. released data showing that collected rents fell 7.6 percent during the last quarter of 2013, though it noted there were more lease renewals than expected.
Those looking to follow Blackstone’s lead will have to take these things into account and be particularly careful when vetting investments.
“I would expect, or hope, that if they’re going to go forward and this becomes a popular type of investment, that the due diligence provided is going to be more thorough and the types of rental contracts that get thrown into these pools are going to be lower-risk,” Gizer said.
The homes themselves may also be subject to condemnation or landlord-tenant litigation that could encumber the overall loan indirectly by affecting the value of the collateral, according to David Reiss, a real estate finance professor at Brooklyn Law School.
Before the recession, single-family homes were considered too expensive to be managed by a large institution like Blackstone or American Homes 4 Rent because of their geographic diversity and because it was hard to control property management on so many different homes, according to Reiss.
The financial crisis made distressed single-family homes cheaper and more attractive to opportunistic investors, and the low price may compensate for the other issues, he said.
“This is a new asset class, and it is not yet clear whether Blackstone has properly evaluated its risks,” Reiss said. “Time will tell whether these bonds will become a significant new category of asset-backed securities or whether the financial crisis presented a one-time financial opportunity for some firms.”
So far the results have been positive, though the ratings agencies have yet to comment on the decline in rental revenues in the third quarter. Morningstar, Kroll Bond Ratings and Moody’s Corp. all surprised the market last year when they upgraded Blackstone’s deal to Triple A from the expected A-. Analysts said this upgrade was thanks to the conservative nature of the deal’s structure, which focused on legal protections for individual homeowners.
Some lawmakers and regulators have called for measures to ensure that future deals are equally protective.
Rep. Mark Takano, D-Calif., recently asked the House Financial Services Committee to hold hearings to determine how single-family rental bonds might harm or benefit the housing market. And some experts have called for a review of the covered bonds guidelines issued in 2008 by the Treasury and the Federal Deposit Insurance Corp., as well.
The guidelines’ definition of an “eligible” property may need to be updated, and issues may arise with regard to the need for revolving rather than static pools in order to address REO-to-rental- backed bonds, according to Susan E.D. Neuberg of Edwards Wildman Palmer LLP.
These changes could further encourage the creation of these bonds, which Neuberg emphasized are not the no-income-verification, 95 percent loan-to-value, variable interest rate mortgages of the pre-crash era.
“These are not your grandmother’s RMBS bonds,” she said. “Inherently, the risk lies with the quality of the underwriting.”
–Editing by Kat Laskowski and Philip Shea.
All Content © 2003-2014, Portfolio Media, Inc.
Bryan Sullivan Quoted in “Hoffman Libel Suit To Test If News Media Can Blame Fakers”
Category: News, Press | Wednesday, February 12th, 2014 | Comments Off on Bryan Sullivan Quoted in “Hoffman Libel Suit To Test If News Media Can Blame Fakers”
Bryan Sullivan was quoted in Pete Brush’s Law360 piece titled “”Hoffman Libel Suit To Test If News Media Can Blame Fakers,” which discusses David Bar Katz’s $50 million libel suit over a false National Enquirer report.
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Law360, New York (February 11, 2014, 7:34 PM ET) — A writer’s $50 million libel suit over a false National Enquirer report that he was Philip Seymour Hoffman’s lover could test New York courts’ tolerance for journalistic sob stories about fake sources after the tabloid claimed it had been “tricked” by a caller claiming to be the plaintiff, legal experts said.
The potentially devastating damages claim was filed Feb. 5 against Enquirer parent American Media Inc. by stage- and screenwriter David Bar Katz, who found the actor dead on Feb. 2 and who calls the report an “outrage” that should be met with a stern rebuke in the form of punitive damages.
Two days after Katz sued, the tabloid issued a correction and apology that blamed “a source who we have now concluded misled us as to his identity” who supposedly duped an experienced reporter into penning a story that also falsely quoted Katz as saying Hoffman was freebasing cocaine the night before his death.
“A veteran Enquirer reporter spoke at length with someone who identified himself as David Katz, and he had reason to believe he was indeed speaking with Mr. Katz,” the tabloid said.
“We believe we were tricked,” it added.
But with the Enquirer’s story for sale on supermarket shelves in its Feb. 17 issue, the apology likely will be seen as cold comfort by the plaintiff, whose suit notes he “will forever be haunted by the fact that he was the one who discovered Hoffman’s body” and says that on top of his anguish, the report exposes him to “hatred, contempt or aversion.”
Libel lawyers tuning in to the matter tell Law360 that, barring a settlement where both sides find satisfaction, the first question lawyers at the Enquirer will ask will be whether they can poke holes in Katz’s assertion that he is “not a public figure for defamation purposes” even though he characterizes himself as a “celebrated” writer in the complaint.
If the Enquirer can convince a court that Katz is a public figure, his burden of proof for damages shoots through the roof.
“If I were the Enquirer, I might argue that he is a public figure — and I would have some ammo for that,” said Kelley Drye & Warren LLP entertainment and media lawyer David E. Fink, who added that Katz’s affirmative assertion in the suit that he’s not a public figure “sounds like an argument somebody might make in a brief.”
But Fink and other lawyers added the caveat that the tabloid’s ability to win that fight was far from certain against a man who — despite having a claim to celebrity and a Wikipedia page — likely is best-known now as a result of his association with the famed actor’s untimely demise.
Other lawyers watching the case, such as entertainment and business litigator Mitchell J. Langberg of Brownstein Hyatt Farber Schreck LLP, saw an attack on Katz’s status as a nonpublic figure as a near-certain loser.
“Public-figure status is reserved for people who have such prominence in society that they have become household names,” Langberg said. “Celebrities such as Jay Leno and Howard Stern have reached this status. Katz has not.”
The tabloid would also face an uphill battle even to show that Katz is a “limited public figure” in the case as a result of having “thrust himself into the vortex” of a “public issue” to “engage the public’s attention in an attempt to influence the outcome,” Langberg said.
“Katz does not appear to have voluntarily thrust himself into any public controversy, particularly for the purpose of influencing its outcome,” he added.
But media lawyers say the public-figure argument isn’t the only path to success for the magazine since New York courts also have a “weird standard” in libel cases where they attempt to determine whether the story in question was a matter of public concern.
Even if Katz were a deeply private figure, if the Hoffman story is deemed by a court to transcend mere gossip and become a matter of public import — perhaps because of the discussion of addiction it spawned — then the plaintiff’s relatively low standard of proving mere negligence ratchets up to a standard where he must show the tabloid acted “in a grossly irresponsible manner without due consideration for the standards of information gathering and dissemination ordinarily followed by responsible parties,” as laid out in a case called Chapadeau v. Utica Observer.
“That could be a very close call, and it will have a significant impact on how the case plays out,” Langberg said, noting what appears to be a profusion of dupes in the media in recent years — perhaps most famous among them the Stern-inspired callers who fool cable news outlets scrambling for information during breaking news events.
Meanwhile, a fight over the public import of the story — and over whether the Enquirer was “grossly irresponsible” for allegedly thinking it was talking to Katz — could result in a potentially painful discovery process for the plaintiff, warned business affairs attorney Bryan M. Sullivan of Early Sullivan Wright Gizer & McRae LLP.
For example, while Katz says he didn’t talk to the magazine about Hoffman, his suit also says that he had not spoken with the Enquirer “since Hoffman’s death” — implying that he had at some point talked to the magazine.
If Katz had a prior relationship with reporters at the Enquirer, it could give a judge or jury pause if those reporters claim they thought they were having a fresh discussion, experts said.
“All of that stuff could become the focus of discovery,” said Sullivan, who added that one of the reasons why libel cases tend to settle is due to discovery that delves into litigants’ personal lives.
Meanwhile, the act of apologizing likely has already helped the Enquirer, regardless of whether a “we got fooled” defense flies, since New York law allows courts to consider retractions when mulling damages.
“That’s a defense that the jury considers in New York,” Fink said.
Katz is represented by Judd Burstein PC, who declined requests for comment. Counsel information for the Enquirer was not available.
The complaint is Katz v. American Media, case number 151062/2014, in the New York Supreme Court.
–Editing by John Quinn and Christine Chun.
All Content © 2003-2014, Portfolio Media, Inc.
Sophia Lau Quoted in Main Street Article on Credit Worthiness
Category: Press | Thursday, January 23rd, 2014 | Comments Off on Sophia Lau Quoted in Main Street Article on Credit Worthiness
Sophia Lau was quoted in Juliette Fairley’s Main Street article titled “Increase Your Perceived Creditworthiness With These Tweet Tips.” The article discusses the effect posts on social media sites, such as Facebook, Twitter and LinkedIn, have on an individual’s credit worthiness.
Bryan Sullivan Quoted in Yahoo! Movies
Category: News, Press | Friday, December 6th, 2013 | Comments Off on Bryan Sullivan Quoted in Yahoo! Movies
Bryan Sullivan was quoted in Leslie Gornstein’s Yahoo! article regarding the tragic death of Paul Walker. The full article can be found here.
Stephen Ma Quoted in “REITs Look to Private Offerings”
Category: News, Press | Thursday, November 7th, 2013 | Comments Off on Stephen Ma Quoted in “REITs Look to Private Offerings”
Early Sullivan partner Stephen Ma was quoted in Andrew McIntyre’s October 25, 2013 Los Angeles Daily Journal article “REITs Look to Private Offerings.”
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With the 2012 Jumpstart Our Business Startups Act, or JOBS Act, rule that last month lifted an 80-year-old ban on public advertising for investments, some nontraded real estate investment trusts have started looking at alternatives to a costly registration filing with the Securities and Exchange Commission. The move comes amid a record fundraising year for nontraded REITS, having already raised $12 billion – the most ever in a single year – according to a report by The Investment Program Association and Robert A. Stanger & Co. Inc.
Darryl Steinhause, a partner at DLA Piper in San Diego, said REITs, which already have a laundry list of complex requirements to meet in order to maintain their status, are now opting for so-called Rule 506(c) private placement offerings under the new rule. He recalled a REIT client who had earlier planned to register its securities with the SEC under an S-11 filing as saying, “Why would we do that? It will cost us $7 million to $12 million to get our REIT really going.” The client, which Steinhause declined to name, determined it could instead do a 506(c) offering for a matter of a few hundred thousand dollars to try to reach its fundraising target of $50 million.
Rule 506 offerings themselves are not new, but 506(c) offerings allow companies to advertise to the general public – on the radio, television, or even via billboards on U.S. Route 101 – and represent a potential game changer in the fundraising world. Such offerings can still only be sold to accredited investors, who are individuals with annual incomes of more than $200,000 – $300,000 for couples – or assets, excluding primary residence, of more than $1 million.
Lawyers use similar sets of documents for 506 and S-11 offerings, and disclosures are similar. But structure aside, the offerings are miles apart. S-11 offerings have to be reviewed by the SEC and, unless they qualify for an exemption, are subject to state-by-state review, while 506 offerings aren’t subject to any review. It takes months and costs millions to set up S-11 offerings, while 506 offerings take just weeks and cost thousands. Furthermore, companies that do 506 offerings don’t have to reveal information that their competitors might use to gain an upper hand.
“If I was putting together a REIT and wanted to buy distressed properties in Riverside, and had to put projections in a filing with the SEC, and someone saw that, someone could steal my thunder pretty easily,” said Samuel C. Dibble, a corporate partner at Farella Braun & Martel LLP in San Francisco.
The recovering real estate market has boosted fundraising for nontraded REITs, which this year has already broken the $11 billion record set in 2007. There has also been considerable transactional activity in the nontraded REIT space. American Realty Capital Trust IV Inc., for one, has a pending $3.1 billion sale to publicly-traded American Realty Capital Properties Inc.
“Many in the real estate industry will likely utilize this law to raise equity,” said David P. Lari, a real estate partner at Cox Castle & Nicholson LLP in Los Angeles. “I think you’ll see the new law used more in the higher-risk, higher-reward real estate transactions.”
The SEC on Wednesday voted to move forward with the second of its JOBS Act provisions, the long-awaited crowdfunding rule designed to help startups raise capital in so-called online “portals.” Lawyers say this would impact a host of companies including REITs, although the SEC still needs another vote on that measure before it could go into effect.
“The REIT scenario is very interesting. … There are people who have been sitting on money since 2008 who are looking to invest in real estate,” said Stephen Y. Ma, a partner at Early Sullivan Wright Gizer & McRae LLP in Los Angeles. “The trick is, they’ve got to have the resources – the lawyers, the consultants – to make sure they’re complying with the rules.”
Indeed, that question of compliance is a sticking point for some companies, but also a source of work for lawyers.
“I’ve had a lot of clients ask,” Farella Braun’s Dibble said, “and say, ‘We won’t be the guinea pig here.'”
The SEC can’t fault companies for advertising, but as the agency comes out with new guidance on the process of documenting accredited investors, it could fault companies for not complying in that arena, say lawyers. And, of course, whenever there is a loosening of regulations, there is a heightened chance for fraud.
“Any real estate type of entity out raising capital may want to avail itself to the loosened restrictions,” said Seith Weissman, a partner at Jeffer Mangels Butler & Mitchell LLP in Los Angeles. “Until the new regulations come out, there’s going to be a lot of cursory interest in the topic. I don’t think you’ll see a massive flood of new types of advertising or investment.
Michele W. Layne, director of the SEC’s Los Angeles regional office, declined to comment on the topic, and the SEC in Washington, D.C. couldn’t be reached for comment.
Despite the uncertainties, Steinhause said other companies have come to him. He thinks REITs may use the opportunity to advertise 506 offerings as way of testing the water before perhaps later filing an S-11.
“What I think what you will see is that some REITs will do a 506(c) offering to see how viable the REIT concept is for that sponsor,” Steinhause wrote in an email. “After they have established a track record and own specified properties, it will make it much easier to sell their REIT shares in a publicly registered offering.”