As the impact of technology on our lives expands, sometimes the law fails to do so accordingly, creating questionable legal gray areas. Many of us store our entire lives in our cell phones, usually just protected by a short four-digit password. The question of whether or not it’s legal for the government to ask for someone’s phone password was just decided by a Pennsylvania court, at least temporarily solving at least one of those legal gray areas.

The case, SEC vs. Huang, dealt with two former Capital One data analysts who were suspected of insider trading. They were using phones that were provided by Capitol One, but used passwords that the suspects had chosen themselves. They were not required to disclose these passwords to Capitol One. Although they returned the phones to Capitol One when they were fired, they did not turn over the passwords. When the investigators asked the two suspects (both with the last name Huang, although not related) they refused, arguing that the Fifth Amendment, which protects an individual from self-incrimination, allowed them to refuse to hand over that information.

On Wednesday a district court in Pennsylvania decided in favor of the Huangs, meaning that they don’t have to turn over their passwords.

There were a lot of questions particular to the case, including the application of a particular legal doctrine called “foregone conclusion.” Essentially, pieces of information aren’t protected under the Fifth Amendment when the government knows what they contain, and their location. In this particular case, Judge Kearney wrote that the government “has no evidence any documents it seeks are actually located on the work-issued smartphones, or that they exist at all.” However, some legal experts, including the Volokh Conspiracy writer Professor Orrin Kerr, argue that the doctrine was applied incorrectly, pointing out that there’s a difference between asking for records of insider trading and asking for the passwords. If this case is appealed, that may be one of the questions that ends up being dealt with.

But back to that legal gray area–while the court may have ruled that phone passwords can be protected under the Fifth Amendment, other aspects of our mobile security probably aren’t. For example, last year a Virginia Circuit Court ruled that while cops can’t require individuals to unlock their phones using passwords, they can make them unlock them using biometric data–like the TouchID feature popular on most recent iPhone models. While these are obviously very different cases, in different courts, these cases and many others highlight the fact that the conversations over privacy and Fifth Amendment issues in the digital age are far from over.

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.

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The Obama administration passed the Jumpstart Our Business Startups (JOBS) Act into legislation in 2012. Two years later, the JOBS Act has been amended several times and the market for IPOs has seen some stark changes in the right direction as a result.

Accessible Capital Ventures

The JOBS Act in its initial form legalized equity crowdfunding in an effort to create more jobs. The legislation allows individuals to invest in start-up companies in exchange for equity. This act was designed to foster growth of start-up companies and create more jobs for young professionals. Furthermore, entrepreneurs were given new outlets to fundraise for their budding enterprises.

Last summer, the Securities and Exchange Commission (SEC) added an amendment to the JOBS Act. Title II removed an eight-decade-old ban on general solicitation or advertising for private enterprises that were not formally registered with the SEC.

By requiring the SEC to remove this general solicitation restriction, Congress sought to make it easier for a company to find investors and thereby raise capital.

The success of many companies depends on the timing of their first public sales. When the JOBS Act made it possible for companies to conduct their initial paperwork behind closed doors and control the time of their public announcement, many new companies jumped on the bandwagon.

In 2013, the number of initial public offerings (IPOs) increased by 70 percent. The biotech industry has seen an incredible boom thanks to the JOBS Act. Biotech investors and CEOs of emerging companies are pushing for further legislation to make access to capital easier so they can focus on breakthrough developments and treatments for HIV/AIDS, cancer, and diabetes.

Jumpstarting Young Professionals

What does all this mean for young professionals eager to launch their own business ventures? With more control over IPOs and easier access to investors, Millennials are more likely to land investors. Rather than depending on one main investor, emerging companies can acquire several smaller investments from various investors.

For Millennials, perfecting the art of investor relations will be a key component of their start-ups’ success. Young business proteges interested in the tech or biotech industries have lots of room to grow and should start creating connections with investors.

Title III of the JOBS Act opened up the opportunity for companies to crowd investing. Individuals who invest online into private companies do not have to be accredited, though there are certain limitations set for these individuals. For example, a potential investor with an income below $100,000 can invest at most 5 percent of his or her income or net worth.

For Millennials who are interested in launching a company in an emerging market and seeking private investors, websites like RealCrowd exist. RealCrowd is an investment website dedicated to the real estate market.

Lastly, it’s imperative for start-up companies to get to know their investors. The JOBS Act allows for emerging growth companies to learn their investors’ motives and style. Because IPOs are now private, companies can back out of deals without public backlash.

The market is ripe for start-up companies – not only do they stimulate the economy, but they also create job opportunities. The JOBS Act benefits job seekers, entrepreneurs, and investors and makes it easier for start-up companies to become successful.

Natasha Paulmeno

Natasha Paulmeno is an aspiring PR professional studying at the University of Maryland. She is learning to speak Spanish fluently through travel, music, and school. In her spare time she enjoys Bachata music, playing with her dog, and exploring social media trends. Contact Natasha at staff@LawStreetMedia.com.

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Chinese e-commerce giant Alibaba recently made major headlines when it decided to go public. The company’s initial public offering (IPO) went on to become the largest in history. IPOs can be complicated business, and most companies carefully deliberate before putting effort into an IPO. Read on to learn what exactly an IPO is, why companies want to go public, and what different ways there are to go about it.

What is an IPO?

An initial public offering allows a private company to become a public company. Essentially an IPO is a stock market launch where the company’s stock can be bought by the general public. Private shares of a company are sold to big investors who then sell to the general public.

A private company may have only a few shareholders. Since it is private, it is not subject to the regulations of the Securities and Exchange Commission (SEC). A public company is publicly traded and thus is subject to SEC regulation. An IPO is traditionally issued to smaller, younger companies hoping to gain capital to expand their business.

Why do companies decide to have an IPO?

IPOs are a great way for companies to quickly raise large amounts of capital to gain liquidity. This money can then be used to improve the company by reinvesting in its infrastructure or expanding the business. The major benefit to companies is that in selling shares they are never forced to repay investors the money they gain. Watch a video on some of the benefits of an IPO below:

Monetize the Investment

Many early investors or founders of a new company may be interested in cashing out their initial investment. An IPO easily allows them to do just that. The IPO provides an easy exit for angel investors or venture capitalists since they can cash out their investment by selling their shares of the company to the general public.

Increased Exposure

Going public means a company gains prestige and a better public image. Being listed in major stock exchanges such as NASDAQ or NYSE makes the public think more highly of the company and helps to garner media attention.

Benefit of Stock

Being able to offer stock gives the company options and flexibility. Employee stock ownership plans can help recruit top talent to the company. Further, the increased scrutiny that comes from SEC filings means the company can get better rates when it issues debt. Issuing debt allows the company to create other financing opportunities in the future.

What are the disadvantages of an IPO?

The immense legal, accounting, and marketing costs associated with the IPO process can be difficult for a smaller company to afford. The required time, attention, and effort of senior management take a significant toll and can hamper the company’s operations. The issuing of stock can also mean a loss of control for management, since shareholders may be given some say in the future direction of the company.

The requirement to disclose certain information in SEC filings is also a drawback for many companies. A publicly-traded company must have a board of directors and must report its financial information every quarter. This information could prove valuable to the company’s competitors.

IPOs can be risky for investors. It is tough to predict what the stock will do at the beginning of trading since there is no track record of the company to analyze. Since most IPOs are issued by companies going through rapid growth, there is a great deal of uncertainty in predicting how well the company will be doing in the future. Caution should be used when deciding whether to invest. Most experts say that small investors should wait a month or more to buy shares of an IPO so the price of the stock has time to settle down.

How does the IPO process work?

Given the concerns of going public, companies think long and hard before making the decision. The process is lengthy and very costly.

1. Once a company decides to go public, it will typically seek the assistance of an investment banking firm, such as Goldman Sachs or Morgan Stanley. The investment banking firm acts as the underwriter. Banks submit bids to companies going public with statements of how much money the company would make and what share the bank would make. This competition can be fierce, especially if banks think there is a lot of money to be made on the deal.
2. When an investment bank is hired, the company and the bank discuss how much money they will raise from the IPO, the type of securities to be issued, the price, when to bring the IPO  to market, and other details of the underwriting agreement. It is the underwriters’ job to make a large purchase of the firm and then facilitate the orderly sale of this initial stock. Underwriters make money through the fees charged to the company and by the stock they sell. The underwriter takes the risk that it will be able to sell the stock it bought from the firm for more than it initially paid.
3. The bank then puts together a registration statement called an S-1 to be filed with the SEC. This statement offers information about the company such as its past financial statements and any past legal issues. The SEC will investigate to ensure the information it receives is correct and to make sure all information has been disclosed. During this time the company will pick which stock exchange it wants its shares listed on.
4. The company will typically go on some sort of “roadshow.” It may travel to meetings across the country or online as a way to drum up investor interest in the IPO. Through attracting large investors in the roadshow, the company can then sell its stock in large blocks to institutional investors.
5. As the date of the IPO nears, the company and underwriter will agree on a price. They try to find a price low enough to generate interest yet high enough to raise money for the company. A certain percentage of shares, typically around 20 percent, are agreed to be sold. Institutional investors are often offered the first shares.
6. The underwriters sell their shares of stock to a large number of investors on the public market. The banks make their profit on the difference in price between what they paid before the IPO and what the shares sell for when officially offered to the public. Very rarely will small investors get some kind of IPO allocation. Typically they have to wait until the stock is listed on the exchange in a secondary offering. In a secondary offering, investors may sell a large block of their initial sales directly to the public.

Watch a basic overview of the IPO process below.

What are some alternative IPO methods?

There are numerous different ways of making a public offering. While most involve the basic process described above, the different methods alter specific elements of the IPO.

Venture Capital-Backed IPO

A venture capital-backed IPO is one in which management sells its shares to a group of private investors in exchange for funding and advice. This allows venture capitalists to effectively exit after creating a financially-stable company.

Reverse-Leverage Buyout

With a reverse-leverage buyout, the money made from an IPO is used to pay off debt accumulated while the company was private. By privatizing a publicly-traded firm that is undervalued on the market, the owners are able to make money once the public becomes aware of the high intrinsic value of the firm.

Dutch Auction

The idea of a Dutch auction was explored in the Google IPO. In a Dutch auction, the company reveals the amount of shares to be sold and a potential price. Investors state the number of shares they want and what price they want to pay. A minimum clearing price is determined, then investors who bid at or above that price are awarded shares. If there are more bids than available shares, the company awards a percent of shares based on the percent that was bid for. Investment banks do not typically like this arrangement since it offers equal access to shares to groups other than the underwriter. Further, if there is not strong initial demand for the shares, the auction could mean the company will not raise a lot of money through the IPO.

What are some recent examples of IPOs?

Prior to 2009, the United States was the leading issuer of IPOs in terms of total value. China has since taken the lead and become the new major IPO market. The number of IPOs is usually indicative of the health of the stock market and the economy. Most major IPOs in recent years were for technology companies.

On September 19, Chinese e-commerce giant Alibaba made its IPO debut. Trading went off without a hitch as Alibaba’s became the largest IPO ever at a whopping $25 billion. The IPO price was set at $68 a share, but shares opened more than 35 percent above the initial set price.

Facebook’s IPO in May 2012 made only $16 billion. Many cite Facebook’s mistake to be dramatically raising the price of shares and size of the IPO just before the date of the IPO. This led to rough trading and to the stock falling 50 percent in the first four months of public trading.

The recent success of Alibaba as well as other strong IPOs are seen as signals of stock market strength. Do not expect the increase in IPOs to slow down anytime soon.

Resources

Primary

CNBC: Initial Public Offering: CNBC Explains

Additional

Business Insider: The NYSE Explains How IPOs Work

The Share Centre: IPOs Explained: 10 Things You Need to Know

Business Insider: This Handy Infographic Explains How an IPO Actually Works

Wealth Lift: Initial Public Offerings Explained

Investopedia: IPO Basics: What is an IPO?

Seeking Alpha: Facebook IPO and Types of IPOs and After-Market Support

Investopedia: 5 Things to Know About the Alibaba IPO

CNBC: Alibaba IPO Biggest Ever; Shares Decline

Reference for Business: Initial Public Offerings

Mergers & Inquisitions: The Initial Public Offering Process: Got Facebook Shares?

USA Today: Why Alibaba IPO Fared Much Better than Facebook’s IPO

Alexandra Stembaugh

Alexandra Stembaugh graduated from the University of Notre Dame studying Economics and English. She plans to go on to law school in the future. Her interests include economic policy, criminal justice, and political dramas. Contact Alexandra at staff@LawStreetMedia.com.

The post The Alibaba IPO: What Does Going Public Mean? appeared first on Law Street.

Last year, when actor Zach Braff  launched a Kickstarter campaign to raise money for his movie, Wish I Was Here, it made the headlines. Some people couldn’t wrap their heads around giving funds to a guy who is already better off than the majority of us, but Braff quickly responded that that isn’t the point behind a crowdfunding effort.

Now Braff’s campaign is in the news again. The movie premiered at Sundance over the weekend to an enthusiastic audience. Fans cheered when the credits rolled and the 46,520 Kickstarter backers were listed. Within 24 hours of the film’s debut, Focus Features acquired it for about $2.75 million. In the indie movie arena, that fee would usually be used to repay the financial backers of the project; however, that is not the case for Braff’s Kickstarter campaign.

Producer Stacey Sher assured backers that they will be getting everything that they were promised upfront, though not reimbursed for the donations they made. The backers allegedly seem fine with this arrangement. The production team is keeping the promised schedule of meet and greets, showings, and paraphernalia. Before anything else, Sher says that they are committed to print t-shirts for and schedule visits with the film’s supporters.

So, is this fair? Yes. They are keeping their commitments and being consistent with their word. Though not traditional, this might be the new normal. This situation is another example of how crowdfunding and new ways of garnering investments are navigated. The Security and Exchange Commission is still orchestrating the logistics and legalities of exactly where The JOBS Act, micro-financing, and crowdfunding leaves investors. What does this mean in the long run? It means that rules are changing. Traditions are evolving. It means, though, that when you venture down this slightly less traveled terrain, you have to be all that more careful about specifying your promises and making sure to proceed with honesty to completion. Sher stated that a crowdfunding effort like Braff’s “is not to be entered into without a very serious commitment to your backers, and an understanding that these people are your champions, your cheerleaders, and your market.”

Courtesy of Mathieu Marquer via Flickr.

Don’t worry, Zach! We still heart you. Thanks for the t-shirts!

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Alexandra Saville (@CapitalistaBlog) is the Media and Writing Specialist at Law Street Media. She has experience in the publishing and marketing worlds and started her own publishing company right out of college. Her blogs, The Capitalista and Capitalista Careers, focus on the young and the entrepreneurial.

Alexandra Saville

Alexandra Saville is the Media and Writing Specialist at Law Street Media. She has experience in the publishing and marketing worlds and started her own publishing company right out of college. Her blogs, The Capitalista and Capitalista Careers, focus on the young and the entrepreneurial.

The post I Helped Kickstart Zach Braff’s Movie and All I Got Is a Lousy T-Shirt appeared first on Law Street.

Name: Robert S. Khuzami

Born: August 2, 1956

Position: Partner

Place of Occupation: Kirkland & Ellis LLP, Washington, D.C.

Current Salary: $5,000,000/year

Former Notable Positions:

• Head of Enforcement Division at Securities Exchange Commission (SEC)
• U.S. Federal Prosecutor – Chief of Securities and Commodities Fraud Task Force
• General Counsel at Deutsche Bank AG (DBK)

Law School: Boston University School of Law, Class of 1983

Links:

• Robert Khuzami – Kirkland & Ellis LP Profile Page
• Robert Khuzami – Wikipedia page
• Ex-SEC Enforcement Chief Joins Kirkland & Ellis for $5 Million a Year
• Under Khuzami, SEC Filed More Than 150 Cases Related to Financial Meltdown
• A Legal Bane of Wall Street Switches Sides

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Rob Anthony is a founding member of Law Street Media. He is a New Yorker, born and raised, and a graduate of New York Law School. In the words of Supreme Court Justice William O. Douglas, “We need to be bold and adventurous in our thinking in order to survive.” Contact Rob at staff@LawStreetMedia.com.

Featured image courtesy of [Donald W Reynolds via Flickr]

Robbin Antony

Rob Antony is a founding member of Law Street Media. He is a New Yorker, born and raised, and a graduate of New York Law School. Contact Rob at staff@LawStreetMedia.com.

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