At Last! Relaxation of Federal Securities Regulations for Private Company Stock Incentive Awards may be on the Horizon

Many privately held companies rely on equity compensation awards (typically stock options) to recruit, retain and motivate key employees and other service providers.  The issuance of such equity compensation awards generally needs to comply with, among other things, federal securities laws.  Most commonly, private company issuers of equity compensation awards rely on federal Rule 701 which provides an exemption from the registration requirements of the Securities Act of 1933. Continue Reading

The SEC and ICOs: Putting the SEC’s Determination that DAO Tokens are Securities in Context

On July 25, 2017, the U.S. Securities and Exchange Commission (“SEC”) issued a report (“Report”) detailing its investigation into whether the DAO (an unincorporated “decentralized autonomous organization”), Slock.it UG (“Slock.it”), Slock.it’s co-founders, and intermediaries violated the federal securities laws. The SEC determined that the tokens issued by the DAO are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), and advised those who would use a distributed ledger or blockchain-enabled means for capital raising to take appropriate steps to comply with the U.S. federal securities laws. However, the SEC decided not to pursue an enforcement action at this time. Continue Reading

SEC Declares That Initial Coin Offerings (ICOs) May Be Securities; Finds DAO a Security

The SEC has opined that, depending on the facts and circumstances of each individual ICO, the virtual coins or tokens that are offered or sold may be securities. If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws. Continue Reading

Dear Congress: Your District Needs a New E-4 Visa for Promising Entrepreneurs

Procedural History

In August 2016, the Department of Homeland Security proposed an “International Entrepreneur” parole rule that would allow qualifying foreign entrepreneurs to develop and grow their start-up companies in the United States. After public comment, the rule was finalized and released in the closing days of the previous Administration. Continue Reading

The “Blockchain Amendments” to the Delaware General Corporation Law

Two amendments have been proposed to the Delaware General Corporation Law (the “DGCL”) to permit corporate record keeping utilizing blockchain databases (the “Blockchain Amendments”). Specifically, “stock ledger” is to be defined in Section 219 of the DGCL to include ledgers “administered by or on behalf of the corporation,” in order to permit a record keeping system utilizing blockchain databases. Section 224 of the DGCL is to be similarly amended regarding all corporate records, and provide that such records may be kept on “one or more electronic networks or databases (including one or more distributed electronic networks or databases).” Continue Reading

New Hampshire Exempts Bitcoin from Money Transmitter Regulation

The pro-bitcoin legislation trend continues. This month New Hampshire passed legislation that exempts persons using virtual currency from registering as money transmitters. Specifically, the law amends existing RSA 399-G, which deals with licensing of money transmitters as follows. Continue Reading

Taking Stock in Blockchains

Corporate lawyers and software developers have been watching eagerly as the State of Delaware takes steps to enable Delaware corporations to issue shares of their stock as digital tokens. Instead of recording shares on paper ledgers, corporations will record ownership using “Blockchains”: ledgers that are secured by cryptographic keys that can be distributed around the world without fear of tampering. Continue Reading

Important Open Source Ruling Confirms Enforceability of Dual-Licensing and Breach of GPL for Failing to Distribute Source Code

A recent federal district court decision denied a motion to dismiss a complaint brought by Artifex Software Inc. (“Artifex”) for breach of contract and copyright infringement claims against Defendant Hancom, Inc. based on breach of an open source software license. The software, referred to as Ghostscript, was dual-licensed under the GPL license and a commercial license. According to the Plaintiff, those seeking to commercially distribute Ghostscript could obtain a commercial license to use, modify, copy, and/or distribute Ghostscript for a fee. Otherwise, the software was available without a fee under the GNU GPL, which required users to comply with certain open-source licensing requirements. The requirements included an obligation to “convey the machine-readable Corresponding Source under the terms of this License” of any covered code. In other words, under the open source license option, certain combinations of proprietary software with Ghostscript are governed by the terms of the GNU GPL. Continue Reading

Let’s Finally Fix Crowdfunding!

On April 5, 2012, President Obama signed into law the landmark Jumpstart Our Business Startups Act (JOBS Act), for the purpose of encouraging the funding of startups and small businesses throughout the United States.  Title III of the JOBS Act, otherwise known as Regulation Crowdfunding or Reg CF, received the most attention because it legalized investment crowdfunding.  The purpose of Reg CF was to make it easier for startups and small businesses to access capital, to give more people the ability to participate in investment opportunities, and ultimately, to create jobs and stimulate economic growth.

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