SEC finds U.S. Crowd-Funding Offers New Capital Source

Crowdfunding has become an increasingly popular form of raising capital for small businesses and entrepreneurs.

Social Media platforms have come to play a large role in facilitating crowd funding. They also, as a platform for crowd funding, have enabled regulators to foster fair valuations in determining the value of enterprises whose shares are offered for sale.

In May 2016, the U.S. Securities and Exchange Commission (“SEC”) issued a new rule, Reg CF, to regulate crowd funding. The Jumpstart Our Business Startups (JOBS) Act, passed into law in 2012, empowered the SEC to write new rules to create a regulatory regime for crowdfunding.

These new regulations allow crowdfunding, up to $1 million, from accredited and non-accredited investors alike. Reg CF is essentially the first step in the capital ladder for early-stage companies. The intent was to create a low barrier to capital formation in order to enable businesses at their earliest stages to attain sufficient capital to get off the ground.

However, the new regulations, despite their intent to lower the barriers of capital formation, have been criticized by some as overly strict, costly, and ultimately creating barriers to capital formation. Many critics believe that the new regulations may actually be a deterrent to crowdfunding.

Mike Piwowar, acting SEC Chairman, echoed concerns that the rules were too restrictive. Piwowar stated, “[t]he commission should consider whether any further steps should be taken to improve our crowdfunding regulations, including the use of exemptive authority.”

Likewise, the Division of Economic and Risk Analysis (“DERA”), published a report that provided updates on the current state of issuers utilizing these new regulations as well as some critiques for changes to be made in the future. The DERA report affirmed the sentiment that the industry is quickly evolving and that today’s activity is probably not wholly indicative of future outcomes.

Looking forward, this is just the start for regulating crowdfunding. Changes are undoubtedly on the horizon. Congress is in the process of updating Reg CF to reflect some of the issues within the industry. Specifically, there are hopes that this update will allow special purpose vehicles which, in turn, would more easily align the interests of issuers and borrowers as well as more easily manage shareholder interests.

Despite the plethora of critiques, these new regulations are still a step in the right direction. They regulate crowd funding in a manner that will strike a balance to meet the needs of issuers, borrowers, and business in ultimately driving the success of newly formed businesses.

SEC finds U.S. Crowd-Funding Offers New Capital Source (PDF)

Following a Year of Scandal, Deutsche Bank Looks toward the Future

In early March 2017, Deutsche Bank announced that its latest restructuring will include an 8.5 billion capital raising scheme, a reorganization of its retail business, and a merging of its market business and investment bank.

This announcement comes on the heels of a turbulent year for the former investment powerhouse. In December, the bank agreed to a multimillion-dollar settlement with the United States Department of Justice for its involvement in the 2008 financial crises. Then in January, Deutsche Bank announced it would pay millions of dollars in fines for helping Russian investors launder nearly $10 billion. This is a far cry from bank’s well-regarded reputation as a dominant foreign currency trader in 2007.

In the December settlement, Deutsche Bank agreed to pay a $7.2 million to the Justice Department for its sale of toxic mortgage securities in the years leading up to the financial crises. As part of the settlement, the bank paid $3.1 billion in civil monetary penalties and $4.1 billion in consumer relief. The negotiations were followed by harsh plummet in the bank’s stock, leading many to wonder about Deutsche Bank’s stability as a financial player.

These concerns were amplified when, on January 30, Deutsche Bank agreed to pay a $425 million fine to New York State’s main financial regulator for its involvement in a Russian money-laundering scheme. The New York State Department of Financial Services found that between 2011 and 2015 Deutsche Bank executives in Moscow and London helped Wealthy Russians send money overseas by disguising these illicit funds as stock trades. Though this scandal, dubbed the “Russian Mirror Trading Scheme,” is smaller in scale than the mortgage crisis payments, it reinforced Deutsche Bank’s emerging reputation as a financial institution accustomed to skirting regulations to amplify profits.

Despite the difficult last few years, John Cyan, Deutsche Bank’s chief executive, is optimistic that it is on a “path to creating a simpler, stronger and growing bank.” Cyan specifically touts the merging of its commercial and investment bank as an opportunity to expand its competitive environment by availing itself to more than 20 million customers.

Following a Year of Scandal, Deutsche Bank Looks toward the Future (PDF)

PSA Group Acquisition of Opel and Vauxhall Brands Faces Economic and Political Challenges

PSA Group, the French manufacturer of Peugeot- and Citroën-brand vehicles, agreed to acquire the Opel and Vauxhall brands from General Motors for $2.3 billion. The deal includes Opel and Vauxhall’s full product lines and production facilities across Europe, as well as Opel’s bank. In acquiring its German rival, PSA propelled itself to the position of Europe’s second-ranked carmaker by sales behind Volkswagen. GM, to its benefit, dispatched of its European arm that has been losing money since the 1990s. However, the merger is not without both microeconomic and macroeconomic concerns.

Although the deal puts PSA in a strong position to challenge Volkswagen, the company must demonstrate post-merger profitability to remain competitive. Both companies have more capacity than necessary, and the Opel brand has not been profitable in recent history. Industry observers have expressed anxiety over potential factory closures and job reductions, but the Chairman of PSA maintained the company would target cost reductions in research and development in order to avoid factory closures. Proposed methods to achieve such cost reductions include redeveloping Opel vehicles with PSA technology and architectures.

Although the French government supports the acquisition, the success of the merger may be subject to the increasingly tense political relations of the companies’ parent countries. Recently, European politicians have demonstrated an increasing awareness of and interest in corporate decision-making as they face a rise of right-wing populism. The automotive industry can be an especially sensitive issue for populist constituents, since job losses or reductions associated with flagging car factories will most heavily impact less-educated, lower-income workers.

France is home to most of the Peugeot and Citroën factories, while Britain and Germany are home to the largest Opel and Vauxhall factories. PSA must balance the needs of elected officials and labor leaders in these countries in order to make the acquisition successful. Britain’s exit from the European Union (“Brexit”) also raises concerns regarding the vulnerability of Vauxhall’s British plants at Ellesmere Port and Luton. If PSA exports cars from Britain to the European continent, the company may find themselves subject to substantial tariffs.

Europe is a challenging market for automobile manufacturers. Customers expect groundbreaking features in small cars that have low profit margins. It remains to be seen whether PSA can leverage its new brand acquisitions to find dominance in the European market, or perhaps growth in the global market that allows reduced reliance on the demanding European market. However, in order to work amicably with European politicians and labor leaders, PSA will be challenged to meet such goals without eliminating jobs.

PSA Group Acquisition of Opel and Vauxhall Brands Faces Economic and Political Challenges (PDF)

Hudson’s Bay and Neiman Marcus in Possible Merger Talks

Neiman Marcus is said to be in merger talks with Hudson’s Bay Company, the Canadian retail giant. If closed, this deal would put the upscale department store under the same company as Sak’s Fifth Ave, OFF 5TH, and Lord & Taylor.

Neiman Marcus was founded in 1907, and passed through the hands of various families until 2005. In 2005, the Neiman Marcus Group, which also operates the Bergdorf Goodman brand, was subject to a leveraged buyout. Two private equity firms, Texas Pacific Group and Warburg Pincus dropped $1.5 billion into the $5.1 billion leveraged buyout deal. In June of 2013, the two private equity firms sought to exit this transaction and originally tried to conduct an IPO. However, they instead opted for an outright sale because of rising stock values and strong credit markets. It was sold to Ares Management LLC and the Canadian Pension Plan Investment Board for $6 billion.

Since 2013, Neiman Marcus has been struggling as online retailers have gained popularity. Their competition stems largely from off-price stores such as TJ Maxx and online retailers such as The company filed to go public in 2015, but decided to pull this IPO. As of October 2013, Neiman Marcus had about $4.9 billion in debt and a decrease of 2.9 percent in sales.

Now, there are rumors circulating that Neiman Marcus is considering a merger with Hudson’s Bay Company. If closed, this deal would shift the department store environment because Sak’s Fifth Ave, also owned by Hudson’s Bay Company, is currently one of Neiman Marcus’ biggest competitors. Although it is not a public company, Neiman Marcus has publicly registered debt, which requires it to report certain financial disclosures. In one of those disclosures, Neiman Marcus said that is was evaluating its strategic options and the sale of the company was one of the avenues being explored. However, the financial disclosures listed that it has not set a timetable to evaluate its options.

Hudson’s Bay and Neiman Marcus in Possible Merger Talks (PDF)

A Public Policy Perspective on Airbnb’s Legal Battles

Historically, hotel taxes have been easy to pass, but now that the money is shifting to Airbnb, cities have become increasingly concerned about funding. Cities have been fighting Airbnb by imposing licensing restrictions, stricter zoning ordinances, creating maximum allotted stays, and increasing taxes.


Fox News, Harassment Payouts, and Federal Investigators

On July 6, 2016, Gretchen Carlson, former host of an afternoon program on Fox News, filed a lawsuit in the Superior Court of New Jersey. Ms. Carlson described Roger Ailes, chairman of Fox News, as a sexual harasser who ogled her and suggested a sexual relationship in order to advance her career in the network. The lawsuit claims that when she turned him down, Mr. Ailes responded by cutting her salary, curtailing her on-air appearances, and even declining to renew her contract. In response to the allegations, Fox News’ parent company, 21st Century Fox promised an internal review of Ms. Carlson’s charges while Mr. Ailes strongly denounced the allegations as “defamatory.” Ultimately, Mr. Ailes would go on to resign.


Facebook’s Virtual Reality Ambitions Could be Threatened by Court Order

Video game publisher ZeniMax Media Inc. recently asked a federal judge to issue an order that would prevent Facebook, Inc. from using important software code that ZeniMax claims to own. Facebook subsidiary Oculus currently distributes the disputed code to outside companies that develop games for its Rift VR headset. If the Dallas judge decides to issue the order, Oculus’ ambitious entry into the emerging virtual reality industry could be seriously hindered, legal experts say. Intellectual property lawyers predict that ZeniMax has a good chance of getting the order, so Facebook must now decide whether to potentially pay a large settlement or fight the order to maintain their position in the industry.


Sterling Jewelers Suit Casts Light on Wider Policies Hurting Women

On February 26, statements from over 69,000 former female employees of Sterling Jewelers were released as part of an ongoing class action suit. The class action against Sterling Jewelers, the parent company of jewelers such as Kay Jewelers, Jared, and others, involves pay discrimination against women. In their statements, the women seeking collective action against Sterling Jewelers detail their encounters with various types of harassment while at the company, ranging from pay discrimination to lewd behavior by male bosses, and including disparate treatment when they’ve tried to report inappropriate behavior.


Next Fight for Anthem and Cigna: The Breakup Fee

While health insurance plans are generally a conversation topic exclusive to those on Capitol Hill, a proposed $48 billion merger between Anthem and Cigna has brought the controversial topic to the Supreme Court. The deals between the two health insurance companies, as well as a few others, stemmed from the need to adapt to potential changes in the market prompted by the Affordable Care Act.