From its office in Clayton, Missouri, Danna McKitrick, P.C., delivers legal representation to new and growing businesses, financial institutions, non-profit and government-related entities, business owners, individuals, and families throughout the greater St. Louis region and the Midwest.
Danna McKitrick attorneys practice across many areas of law, both industry- and service-oriented.
Though not a national leader the St. Louis region has historically shown a comparatively healthy and viable level in crypto activity (currencies, blockchain development, digital strategies, development, and sales of digital products). In 2022, Missouri was the 17th ranking state for most crypto aspects. St. Louis was 31st among US. cities in terms of crypto owners per capita.
Crypto’s Present Damaged State
For the approximately 14 years of the existence of the crypto currencies and digital assets, that industry has globally been particularly mysterious and volatile. And, to summarize that history, suffice it to say that the recent bankruptcies in November 2022 of the FTX cryptocurrency exchange and BlockFi, preceded and followed by such volatility and smaller bankruptcies, have caused many to predict the imminent demise of crypto industries.
However, that volatility existed even before the string of bankruptcies occurring in late 2022. And notwithstanding that volatility, many experts believed that the cryptocurrencies and related industries, all of which are dependent on new technologies (mainly blockchain), were an unadulterated boon to the business world, constituting a particularly efficient system of trade and investment unfettered by regulation.
With crypto being relatively unregulated and using new and not-yet-understood methods of trading and transactions (e.g., blockchain and “smart” contracts), the then existing methods of regulation (e.g., anti-fraud, banking, insurance, commodities and securities law) were (probably mistakenly) not seen as applicable. Continue reading »
Suppose you have become a believer in crypto, crypto currencies, blockchain technology and crypto concepts such as non-fungible tokens (“NFTs”). You believe that crypto-based assets (existing now and probably soon to be invented) present opportunities for profitable new businesses. But what do these opportunities look like under the Securities and Exchange Commission (“SEC”) laws?
Opportunity #1: Sell some of your NFTs and manage them for the new owners.
You decide to sell some of your assets to friends and others who are not as knowledgeable in crypto and offer to manage those NFTs for your purchasers.
But your reading of crypto literature has turned up concerning mentions by the SEC that cryptocurrency and crypto-assets are “securities,” like stocks and bonds, and are – or will be – regulated by the securities laws. And some state securities commissions are also making similarly uncertain statements.
Your further research shows that the statutes and the courts define a “security” to be any interest, contract, or transaction involving:
An investment of money or valuable property,
In a common enterprise,
With the expectation that profits will be derived from the efforts of the promoter/seller of the interest or a third party(s).
I.e., the Howey test, named after the Supreme Court case of SEC v. Howey.
The dominant factor in this definition is that of profits expected to be generated by the efforts of persons other than the purchaser/holder of the interest. You realize that your offer to manage the NFTs calls for your efforts to generate profits and may call the Howey definition into play. (We will perhaps discuss the equally uncertain concept of “common enterprise” in a later discussion.)
“We’re the SEC, and we’re here to make it easier for small businesses to raise capital. . . . Really, . . . we are . . . really . . . trust us.”
Unbelievable?? Yes, except for the past nine years. But its largesse arrived grudgingly under pressure from Congress in the JOBS Act of 2012, which in turn was due to pressure from the business and entrepreneurial community.
Since the adoption of the Securities Act in 1933, sales of investments by companies and entrepreneurs to investors to raise capital have required either registration with the SEC and states (a long expensive process that is not available to most new and/or small businesses), OR qualification for an “exemption” from the requirement. The exemptions have historically been difficult and expensive to obtain and are also unavailable to many businesses.
But in the JOBS Act of 2012, Congress adopted 1) two new exemptions: Regulation Crowd Funding and an improved Regulation A (called “Regulation A+”); and, importantly, 2) a requirement for the SEC to modify many of the existing exemptions to significantly improve their availability. The SEC has since structured the two new exemptions and on November 2, 2020 amended a number of the existing exemptions. The November 2 amendments became effective March 15, 2021. Some of the amendments are as follows: Continue reading »
The entrepreneurial press, indeed, even the popular press, is abuzz about regulation crowdfunding (i.e., investment crowdfunding), which became legal on May 16, 2016. And according to some advertisements (primarily by portals, the businesses which will provide the platforms for such crowdfunding), the fund-raising company does not need an attorney, although it would be “nice.” Rather, they say, or imply, small and large businesses with their portals can simply get on the internet to quickly fund their ideas and better the economy at the same time!
Do not believe either the buzz or the advertisements.
Regulation CF is Only a Small (Albeit Very Important) Part of the Applicable Law
Regulation crowdfunding (17 CFR Parts 200, et seq.)(“Reg. CF”) though it is a sea change from (some of) the rules governing entrepreneurial finance, it is not for everyone. Indeed, for most entrepreneurs it should be considered as a last resort only. (See, for example, “Regulation Crowdfunding; Is it Right for You?”, St. Louis Small Business Monthly, June 2016, p. 29.) Secondly, Reg. CF adds to the rules and required steps for legally raising capital , and thus creates even more of a need for the assistance of a lawyer.
That is, the only (albeit very important) change in the law is that now certain “general solicitation” is allowed to promote certain types offerings of securities. But not all general solicitation is allowed. (For example, much information which could be promulgated other than on the platform of a portal such as by newspaper or television is still illegal.)
Virtually all other regulations, statutes, laws – and judicial lore – applicable to raising capital prior to Reg. CF remain applicable and will be applied by securities regulators – and by attorneys for investors who lose money in their crowdfunded investments. The securities regulators, which have authority to prosecute suspicious offerings, have been opposed to and wary of investment crowdfunding since it was required by the JOBS Act in 2012, including Missouri (see, for example, “Kander Issues Investor Alert on Crowdfunding.”)
With the exception of allowing (limited) general solicitation, all the law (and the lore of the regulators and courts which developed since the Securities Act of 1933) still applies to all offerings, including crowdfunded offerings. So do the complicated rules and methods. For example: Continue reading »
Not surprisingly, there is both anecdotal and empirical evidence that time constraints affect behavior generally. It is also, therefore, not surprising that high time pressure (hereinafter “HTP”) probably affects both parties and mediators in mediation.
I recently ran across this question, and found particularly interesting (though not recent) articles by social science researchers which could assist both parties and mediators in their participation in mediation sessions.
In “Time Pressure in Negotiation and Mediation,” a 1993 article, Professors Peter Carnevale, Kathleen O’Connor and Christopher McCusker, then professors in the Department of Psychology, University of Illinois (“Carnevale, et al.”), reviewed the scientific research to that date on HTP in negotiation generally, and mediation in particular, to identify common themes, interesting questions, possible outcomes of differing HTPs and resulting behaviors. It is only possible here to review possible conclusions of (not the methods of) the research and suggest actions to be taken accordingly by mediation participants to benefit their outcomes. [This article was one of 18 chapters in a larger volume entitled “Time Pressure and Stress in Human Judgment and Decision Making” (Plenum Press 1993). The article, as did the other chapters, discussed the effect of HTP in negotiation generally; it then discussed the effects of such pressure on mediation in particular.]
The authors initially noted that the three strategies primarily used in mediation are: Continue reading »
10/7/16 1:13 PM
Litigation, Mediation & Arbitration | Comments Off on Hurry Up! We Have a Plane to Catch! The Effects of Time Pressure on Negotiation and Mediation |
In the JOBS Act adopted in April 2012, Congress required the Securities and Exchange Commission (“SEC”) to adopt rules legalizing (i.e., exempting from the requirement to register with the SEC) the offer and sale of securities by small business issuers (which cannot afford registered public offerings) using mass media, to-wit: the Internet, social media, etc. Historically, both state and federal exemptions required “privateness” and forbade “general solicitation.”
On October 30, 2015, the SEC, in a 686 page release, finally adopted rules (see pages 547-686) to allow investment crowdfunding (the use of mass media to make offers and sales to non-accredited investors, i.e., persons with less than $1 million net worth and incomes under $200,000 annually). The rules will become effective in April 2016.
Supporters argue that these rules simply bring the offering and sales of securities into the modern age of mass media and allow persons of limited means to participate in the great boom of entrepreneurship. Critics, on the other hand, point out that those are the very persons who are the least investment sophisticated and the most vulnerable to financial fraud.
What Was Available Before Investment Crowdfunding?
To much ballyhoo, on October 30, 2015, the Securities and Exchange Commission (“SEC”) finally adopted rules to allow investment crowdfunding (which the SEC calls “Regulation Crowdfunding”). That is, it allows the use of mass media (Internet, etc.) (called “general solicitation”) to make offers and sales to non-accredited investors. Those are persons with less than $1 million net worth and annual incomes under $200,000. (Under present rules, general solicitation may be used only to solicit purchases from “accredited” investors.) The new rules will not become effective before April 2016.
“Regulation Crowdfunding”:A Method for True Investment Crowdfunding
Conceptually, allowance of general solicitation to solicit non-accredited investors is a sea change, in direct conflict with the basic investor protection philosophy of the SEC and state regulators since adoption of the Securities Act of 1933. The actual benefit of the new rules, however, is in some doubt. Continue reading »
Not quite ten months late, the Securities and Exchange Commission (SEC) on October 23, 2013 proposed rules to allow entrepreneurs and other small businesses to advertise investments in their companies on the Internet and in other general venues, and to allow persons other than wealthy investors to purchase those investments. Congress, in the JOBS Act signed by President Obama on April 5, 2013, had told the SEC to propose such rules by December 31, 2012. (In fairness, the SEC was faced with great pressures from numerous quarters, including the legislators themselves, concerning the content of the rules, which made that deadline impossible to meet.)
This type of investing, called “investment crowdfunding,” was illegal, and will remain illegal until the process of review, amendment and adoption of final rules is complete. The SEC has asked the public for comment on the proposed rules within 90 days. At least a few months of further processing after that 90 day period will be required before the rules are final. Continue reading »
In my Med-Arb Memo of August 2010, I pointed out that a formal mediation session actually should be considered as just one part of a possible multi-part process.
I just read an interesting article suggesting that disputing parties each hire a (separate) consultant to perform decision-tree (DT) analyses when entering into negotiation or mediation.[1] The article argues, and cites instances in which, the hiring of neutral consultants by both parties to the dispute to perform DT analyses led to a greater number of resolutions of those disputes.[2] For many disputes, particularly high-dollar disputes, this is an excellent idea.
But use of DT and other risk analyses and probability assessments in mediation should not be restricted to use of expensive analytic consultants. The parties and the mediator should consider using them without consultants, with much less expense.
DT analysis in litigation is not rocket science. It simply calls on each party (or counsel) to (honestly) analyze and decide the following: the ultimate issues (those whose outcomes individually or in combination would be dispositive of the case with respect to liability, plus those comprising the major components of damages) on issues which each party must prevail in the case in its entirety; and finally, to assess (again, honestly) the percentage likelihood of prevailing on each such issue. At each step in the analyses, of course, the likelihood of success on each issue being less than 100%, the likelihood of total success is discounted. Continue reading »
One of the officers of a corporate client calls. You note the distress in his voice immediately. He tells you that a dispute has arisen between the major shareholder factions of the company, and he wants you to advise on what he and those in his faction can do to win this. And you can tell he expects you to talk “reason” to the other faction.
But you quickly realize that although for the moment knowledge of the dispute is restricted to people in the company, it will only be a short time before it gets out to the customers, suppliers, banks and others with whom the company does business, threatening the existence of the company.
You should consider recommending the factions mediate the dispute, if possible before litigation is filed.
Advantages of Mediation
Some advantages of mediation are:
No Publicity. No lawsuit is filed. The situation can be kept as confidential as the parties want.
Speed. Trial, or even a hearing for significant injunctive relief, will take months, if not years. And as soon as customers hear there is an internal dispute — and they will — they will take their business elsewhere, to a “stable” competitor. And this risk increases significantly if a lawsuit is filed. A mediation can begin immediately.
Crypto in St. Louis and the Midwest U.S.
Suppose you have become a believer in crypto, crypto currencies, blockchain technology and crypto concepts such as non-fungible tokens (“NFTs”). You believe that crypto-based assets (existing now and probably soon to be invented) present opportunities for profitable new businesses. But what do these opportunities look like under the Securities and Exchange Commission (“SEC”) laws?
