July 20, 2019

Archives for November 12, 2012

Crowdfunding: A New Means For Start-up Capital (Part 2 of 2)

This is Part 2 of a two-part series. Click here for Part 1.

On April 5, 2012, President Barack Obama signed The JOBS Act (“Act”) into law and Title III of the Act empowers the SEC to set rules for companies to raise capital through crowdfunding. Crowdfunding will permit entrepreneurs to advertise and seek financing from the general public in relatively small amounts in exchange for an interest in their company. These provisions present great opportunity for new companies and investors alike because start-ups can seek capital from a broad pool of investors and investors can seek financial return through the internet from a company that resonates with them. Permitting a diverse group of unaccredited investors as a shareholder base in a company is a large change in securities regulation.

However, there are significant concerns as to whether the SEC will set rules providing adequate flexibility. Currently, Title III of the Act substantially burdens both issuers and funding portals. Regarding issuers, a sweeping scope of individuals in the company must sacrifice limited liability: directors, partners, principal executive officers, principal financial officers, controller, or any person who offers or sells the security in the offering.  Regarding funding portals, there will be financial costs in providing administrative aid to investors and registering with the SEC. Finally, the language in the Act provides for much disclosure and many regulations that do not significantly depart from current requirements for companies at the IPO stage. For both issuers and funding portals, the regulatory costs may be too great.

Additionally, companies will face uncertainties surrounding later rounds of financing and subsequent restructuring if they decide to crowdfund. It will be vitally important for a company to consider the impact that crowdfunding will have on its projected funding model and its ultimate exit strategy. First, companies should consider whether they plan to seek funding from angel investors, venture capitalists, or other traditional sources because such sources might balk at getting involved with a broad base of unaccredited investors. Second, companies should consider that many restructuring plans require a degree of shareholder approval and such shareholder approval could prove difficult and expensive with a crowdfunded shareholder base. Although speculative, these concerns should be contemplated with each client.

Crowdfunding is an exciting legal development that attorneys should monitor as they advise their business clients. The interest surrounding this funding model is justified because crowdfunding has the potential to change the capital raising landscape for start-up companies overlooked by traditional funding sources. Yet, it remains to be seen whether the SEC will implement rules that address current concerns regarding financial costs and issuer liability. Additionally, companies who seek angel or venture capital funding need to be aware of the pragmatic consequences from accepting funds from the general public. In sum, when the rules are promulgated by the SEC crowdfunding should be considered as a potential funding source for start-up companies, but careful scrutiny should be paid to clients’ future plans.

Joel Jacobson is a Contracts and Operations Associate with H.B. Stubbs Company, LCC – a national design and fabrication firm headquartered near Detroit, MI for exhibits displayed by technology and automotive companies. He focuses on contracts, employment law, and a variety of non-legal business issues. Joel serves on the Executive Council of the Denver Bar Association Young Lawyers Division and has an interest in topics impacting start-up companies in the Denver entrepreneurial community. He can be reached by email at jmjacobson1@gmail.com or on Twitter @J_m_Jacobson.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Colorado Court of Appeals: Defendant Opened the Door to Hearsay Testimony and Therefore Waived His Confrontation Right

The Colorado Court of Appeals issued its opinion in People v. Rogers on Thursday, November 8, 2012.

Hearsay—Constitutional Right of Confrontation—Waiver.

Defendant appealed his jury conviction for possession of a weapon by a prior offender. The judgment was affirmed.

A man picked up defendant at a local motel. A police officer pulled over the driver for failing to use his signal device when making a turn. The officers on scene discovered defendant had three active warrants and placed him under arrest. Relying on the driver’s statements that defendant threw a gun in the back seat, the People charged defendant with possession of a weapon by a prior offender.

On appeal, defendant contended that his conviction should be reversed because the trial court’s admission of testimonial hearsay statements by the driver, who did not appear at trial, violated his constitutional right of confrontation. Defendant’s counsel introduced the driver’s hearsay statement during the cross-examination of the arresting officer to elicit evidence that the driver knew of the gun and had tried to conceal it. This opened the door to the prosecution’s redirect examination and the admission of statements implicating defendant. Therefore, because defendant opened the door by questioning the officer about the information he received from the driver, defendant waived his right to confrontation.

Summary and full case available here.

Colorado Court of Appeals: Judgment Reversed in Bias-Motivated Crime Case Because Officer’s Testimony Constituted Expert Opinion

The Colorado Court of Appeals issued its opinion in People v. Ramos on Thursday, November 8, 2012.

Bias—Third-Degree Assault—Lay Witness—Expert Testimony—DNA Sample—Crim.P. 41.1(c) and 16(II)(a)(1).

Defendant appealed the judgment of conviction entered on a jury verdict finding him guilty of committing a bias-motivated crime and third-degree assault. The judgment of conviction was reversed and the case was remanded to the trial court.

While riding in the front passenger seat of a car driven by his girlfriend, defendant turned to the back seat, where victim R.L. was riding, and made bias-related comments to her. Defendant then proceeded to assault R.L., punching her several times in the face and lower neck.

On appeal, defendant asserted that the trial court abused its discretion in allowing a police detective to testify as a lay witness regarding blood spatter and transfer evidence that defendant left on R.L.’s clothing. When an officer’s opinions require the application of, or reliance on, specialized skills or training, the officer must be qualified as an expert before offering such testimony. Here, although the detective had not been qualified as an expert, (1) the detective testified about his extensive experience investigating cases involving blood; (2) the detective used the technical terms “spatter” and “transfer” and defined them for the jury; (3) the prosecutor advised the court that the detective was testifying “as to his training and experience,” and used that phrase four times in questioning the detective; and (4) the detective’s testimony was not based on his personal knowledge or investigation of this case. The trial court abused its discretion by allowing the detective to testify as a lay witness regarding blood spatter and blood transfer, and this error was not harmless. Therefore, the judgment was reversed and the case was remanded for a new trial.

Defendant also contended that the trial court erred in compelling him to provide a DNA sample, because the People did not provide an affidavit setting forth the grounds to support an order to collect evidence pursuant to Crim.P. 41.1(c). Based on the plain language of Crim.P. 16(II)(a)(1), the trial court did not need an affidavit or showing of special circumstances to order defendant to provide non-testimonial evidence. Therefore, the trial court did not err in this regard.

Summary and full case available here.