ALERT TO NEW YORK BUSINESSES & OTHERS- FURTHER ANALYSIS OF RESTORING FINANCIAL STABILITY ACT THAT PASSED SENATE
On May 20, 2010, the US Senate, by a close 59 to 39, passed the Restoring Financial Stability Act of 2010 sponsored by Senator Dodd, among others. While the overall goal of the bill is to reform the US financial system in order to prevent the crippling crises of the past several years, if passed as law, it has many lesser know provisions that will affect how small and mid size businesses navigate their financial future. Moreover, while the bulk of attention on the bill has focused on its impact on public companies, executive compensation, as well as financial institutions, this bill is not simply aimed at the “big boys”.
Regulation D; Accredited Investor Standard
The senate version of the bill significantly modifies how Regulation D operates for businesses seeking to raise private capital. Interestingly the bill makes certain offerings automatically disqualified for regulation D exemption. Particularly offerings made by so called “bad actors,” who are defined as parties who (a) have been convicted of a felony or misdemeanor in connection with the purchase or sale of any security or a false filing with the SEC; or parties who are (b) are barred from association with regulated entities or from engaging in the business of securities, insurance, banking or in savings association or credit union activities for fraud, manipulation or deception, will be denied the exemption.
Secondly, the bill has targeted the asset component of the accredited investor definition. Ordinarily, under rule 501, if a party has one million dollars in standing assets (liquidity notwithstanding), that party was very arguably an accredited investor. Under the bill, that standard would expressly exclude any wealth tied up in home equity in such investor’s primary residence.
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