Legal Strategics for Startup Success Securities Laws 10.15.pdf

This presentation provides an in-depth exploration of securities laws, focusing primarily on private offerings relevant to startups and emerging companies and emphasize the critical nature of securities regulation, a highly regulated area often overlooked in startup discussions, and underscores the evolving landscape shaped by regulatory changes and enforcement trends.

1. PRACTICE GROUP
Roger Royse
2025
Legal Strategies for Startup Success
Session 7: Securities Laws
EMERGING COMPANIES & VENTURE CAPITAL

2. DISCLAIMER
▪No information contained in this presentation is to be construed as legal
advice. No information contained in this presentation is intended or
related to any particular factual situation. Nothing herein forms an
attorney-client relationship. If legal advice or other expert assistance is
required, the services of a competent professional should be sought.
2

3. Summary
▪What is a security
▪Private offerings
▪Reg D: 506(b) and 506(c)
▪Crowdfunding
▪Broker Dealer Registration
▪Intrastate offerings
▪Foreign targeted offerings
▪Reg A+
▪Public offerings
▪Secondary sales
▪Blue Sky laws
3

4. Generally
▪Every offer and sale of a security must either be registered with the SEC or
qualify for an exemption from registration.
▪Securities Act of 1933 aims to ensure transparency and protect investors
from fraud.
4

5. What is a Security?
▪SEC v. W.J. Howey Co., established the Howey test which is used to
determine whether a transaction qualifies as an "investment contract"
and is therefore subject to federal securities laws.
▪Howey Test Criteria: A transaction is considered a security if it meets all
four elements:
▪Investment of money — There is an investment of funds or assets by a
person.
▪Common enterprise — The investment is in a common enterprise where
investors’ fortunes are linked.
▪Expectation of profits — Investors have a reasonable expectation of
profits.
▪Efforts of others — The expected profits come predominantly from the
efforts of others, such as promoters, third parties, or managers.
5

6. Federal Registration
▪Companies must file a registration statement with the SEC, typically using
Form S-1 for public offerings.
▪The registration includes detailed disclosures about the issuer’s business,
financials, risks, and management.
▪Once declared “effective” by the SEC, the offering can proceed.
▪Registered offerings are subject to ongoing reporting obligations under
the Securities Exchange Act of 1934
6

7. Exemptions
▪Regulation D
▪Rule 506(b): Private placements without general solicitation; up to 35 non-
accredited.
▪Rule 506(c): Allows general solicitation but all investors must be accredited.
▪Rule 504: Offers up to $10 million in a 12-month period.
▪Regulation A
▪Tier 1: Up to $20 million.
▪Tier 2: Up to $75 million.
▪Crowdfunding
▪Reg CF allows offerings up to $5 million via online platforms registered with the SEC.
▪Intrastate Offerings
▪Under Rule 147 and 147A, companies can raise funds within a single state.
▪Section 4(a)(2)
▪Exempts “transactions by an issuer not involving any public offering”.
▪Rule 701
▪Applies to securities issued as part of employee compensation plans.
7

8. Section 4(a)(2) of the Securities Act of 1933
▪Section 4(a)(2) of the Securities Act of 1933 exempts from registration
"transactions by an issuer not involving any public offering."
▪“Public offering" is not explicitly defined in the statute, but courts and the
SEC interpret it by considering factors such as the number of investors,
their sophistication, the use of general solicitation or advertising, the
information provided, and other circumstances indicating whether the
sale is private or public
8

9. Regulation D
▪Regulation D (Reg D) is a set of rules issued by the U.S. Securities and
Exchange Commission (SEC) that provides exemptions from the
registration requirements of the Securities Act of 1933 for certain private
offerings of securities.
▪Rules 504; 506
9

10. Rule 506(b) "safe harbor" under Section 4(a)(2)
▪No General Solicitation: The company cannot use public advertising or marketing to promote
the securities offering.
▪Investor Limits: Securities may be sold to an unlimited number of accredited investors and
up to 35 non-accredited but "sophisticated" investors, who must possess sufficient financial
knowledge or be advised by a knowledgeable representative.
▪Disclosure Requirements: Accredited investors are not required to receive specific
disclosures, but all information provided must be accurate and complete. Non-accredited
investors must receive disclosure documents similar to those used in registered offerings.
▪Company Availability: The issuer must be available to answer questions from potential
purchasers, especially non-accredited investors.
▪Form D Filing: The company must file a Form D notice with the SEC within 15 days after the
first sale of securities.
▪“Restricted Securities”: Purchasers receive restricted securities (limitations on resale apply),
and the offering is subject to “bad actor” disqualifications.
▪Federal Preemption: The offering is exempt from state registration, but companies may still
need to file notices in individual states.
10

11. General Solicitation
▪Publicly advertising or promoting a securities offering through forms of
communication that reach a broad audience, rather than limiting outreach to
individuals with whom the issuer has a pre-existing substantive relationship.
▪General solicitation includes:
▪Newspaper and magazine advertisements
▪Unrestricted public websites
▪Television and radio broadcasts
▪Social media posts and email newsletters
▪Mass mailings
▪Seminars open to the public (except for some demo days
11

12. Accredited Investor
▪Individual Accredited Investor Criteria
▪Annual income over $200,000 (or $300,000 with a spouse or partner) in each of the
last two years, with a reasonable expectation of equivalent income in the current
year.
▪Net worth over $1 million, not including the value of the primary residence, either
alone or with a spouse/partner.
▪Certain financial credentials (e.g., Series 7, 65, or 82 licenses), or status as a
director, executive officer, or general partner of the company issuing the securities.
▪For private funds, “knowledgeable employees” qualify.
▪Entity Accredited Investor Criteria
▪Entities with More Than $5 Million in Assets: Includes corporations, LLCs, trusts,
charitable organizations, family offices, and employee benefit plans.
▪Financial Institutions and Advisers: Banks, insurance companies, SEC-registered
broker-dealers, investment advisers (SEC- or state-registered), and related financial
entities.
▪Entities Where All Owners Are Accredited: If all equity owners of an entity are
accredited investors, the entity itself may qualify.
12

13. Accredited Investor – proposed laws
▪Equal Opportunity for All Investors Act of 2025 (H.R. 3339) would expand
access to private investment opportunities by revising the definition of an
accredited investor.
▪The bill allows individuals to qualify by passing a certification exam
administered by a registered national securities association (e.g., FINRA),
overseen by the SEC.
▪Must be free to the public and designed to test financial sophistication,
including:
▪Types of securities
▪Disclosure requirements
▪Corporate governance
▪Financial statements
▪Risks of private investments
▪Conflicts of interest
13

14. Rule 506(c) "safe harbor"
▪General Solicitation Permitted
▪Accredited Investors Only
▪Issuers must take reasonable steps to verify that each investor is
accredited.
▪Beyond self-certification
▪May include tax returns, W-2s, bank or brokerage statements
▪Third-party verification from a CPA, attorney, or investment advisor
▪Form D must be filed with the SEC within 15 days of the first sale.
▪Securities sold under Rule 506(c) are restricted, meaning they cannot be
freely resold without registration or another exemption.
▪Bad Actor Disqualification - issuers and certain related persons must not
be subject to disqualifying events (e.g., securities fraud convictions)
14

15. Rule 506(c) Verification by amount
▪Fornatural persons a minimum investment of at least$200,000.
▪Forlegal entities (such as corporations, LLCs, trusts) a minimum
investment of at least$1,000,000.
▪The investor must providewritten representationsthat (1) they are
accredited investors and (2) their investment isnot financed in whole or in
part by any third partyfor the purpose of making the investment.
▪The investor must make abinding commitment to invest at least the
minimum amount, either in one lump sum or in multiple installments
when called by the issuer.
▪Issuer hasno actual knowledgethat the investor is not accredited or that
the investment is third-party financed
15

16. Fundraising websites
▪SEC no-action letters:
▪AngelList LLC matches investors with companies
▪Exclusively available to accredited investors
▪No transaction-based compensation
▪FundersClub Inc
▪Posts details of companies to its website after they pass initial due diligence
▪Exclusively available to accredited investors
▪No transaction-based compensation
▪In 2012, the SEC charged some companies operating secondary markets
for private stock
▪SecondMarket escaped unscathed which it puts down to its transparency, rigid
accreditation process, and strict adherence to rules on general solicitation
16

17. Registered Broker Dealers
▪Broker-dealers must register with the SEC by filing Form BD and become
members of FINRA and the Securities Investor Protection Corporation
(SIPC).
▪Registration is mandatory before engaging in any securities transactions
involving interstate commerce.
▪Brokers and dealers must comply with applicable state registration
requirements as well.
17

18. Finders
▪No transaction-based fees
▪Generally, finders arenot required to registeras broker-dealers if they
limit their activities to making introductions without further involvement.
▪Finders must avoid engaging in activities such as soliciting investors
directly, negotiating terms, or receiving transaction-based compensation,
as these activities can require broker-dealer registration.
▪In 2020, the SEC proposed a two-tier exemption (Tier 1 and Tier 2
finders) offering conditional relief from registration based on the scope of
activities
▪Tier 1 limited to providing investor contact info with no investor contact;
▪Tier 2 can solicit but with restrictions and only deal with accredited investors);
▪July 22, 2025 SEC Small Business Capital Formation Advisory Committee
conference regarding the proposed finder rule
18

19. Regulation Crowdfunding
▪Companies can raise up to $5 million within a 12-month period through crowdfunding
offerings.
▪Offerings must be conducted through an SEC-registered intermediary, either a broker-
dealer or a funding portal.
▪Regulates disclosure requirements, requiring companies to file Form C with the SEC and
provide investors with detailed financial and business information, including risk factors
and terms of the offering.
▪Investment limits apply to investors based on their income and net worth to protect
non-accredited investors from excessive risk exposure.
▪Securities sold are generally subject to a one-year holding period before they can be
resold, with some exceptions.
▪Companies and individuals with certain disqualifying events (e.g., securities law
violations) are barred from participating under "bad actor" provisions
19

20. Crowdfunding Investor Limits
▪For non-accredited investors:
▪If either annual income or net worth is less than $124,000, the investor can invest
the greater of $2,500 or 5% of the greater of their annual income or net worth in a
12-month period across all Reg CF offerings.
▪If both annual income and net worth are equal to or exceed $124,000, the investor
can invest up to 10% of the greater of their annual income or net worth, subject to
an aggregate limit of $124,000 in a 12-month period.
▪For accredited investors, there are no investment limits under Reg CF
offerings.
20

21. Online platform or funding portal
▪Intermediary must register with the SEC and FINRA
▪Issuer can only use one intermediary in any concurrent offerings based on
crowdfunding exemption; however, multiple crowdfunding offerings may
be conducted using different portals so long as the aggregate amount in
the same 12-month period does not exceed the $5 million limit
▪Limitations on what entities can be intermediaries (e.g., good actor)
▪Stringent limitations on having financial interests in issuers using platform
▪Only allow issuers if reasonable to believe they are compliant
▪Must make sure investors aren’t exceeding their caps, and that they
acknowledge and understand the risks
▪Must provide communication services between investors and issuer
21

22. Crowdfunding– Other issues
▪Special Purpose Vehicles
▪Testing the waters
▪Repurchase Rights
▪Common stock, preferred stock, convertible notes, debt, warrants, or
revenue share agreements
▪Crowd SAFE
22

23. Reg A+
▪New Regulation A (Reg A+) allows non-accredited investors, and features
two kinds of Regulation A offerings, called “Tiers”:
▪Tier 1: Maximum offering amount is $20 million in a 12-month period. It does not
preempt state securities registration laws, so issuers must comply with applicable
state “blue sky” laws. Tier 1 generally has lower federal compliance burdens, with
fewer disclosure requirements.
▪Tier 2: Maximum offering amount is $75 million in a 12-month period. Tier 2
offerings do preempt state securities registration laws, meaning issuers do not have
to register in each state, which facilitates capital raising across multiple states.
However, Tier 2 involves higher federal compliance burdens including ongoing
reporting requirements such as semi-annual, annual, and current event disclosures
to the SEC.
▪States have been creating a multistate single-registration process to make Tier 1
more palatable, and to show they deserve to not be preempted
23

24. ▪Two kinds of Reg. A offerings, called “tiers”, with different
qualities:
Issue Tier 1 Tier 2
State law regulations? Not preempted;
multistate coordinated
review program to help
Preempted
Maximum amount raised? $20 M in 12 months,
up to $6M of which
from current holders
$75 M in 12 months, up to $15M of
which from current holders
Per investor maximums? None Up to 10% of greater of non-
accredited investor’s net worth or net
income; unlimited for accredited
Investor limitations Accredited and non-accredited okay
Issuer limitations Cannot be public, shell company, bad actor, those failing
certain SEC compliance rules
Reg. A – Two Options (“Tiers”)

25. Issue Tier 1 Tier 2
Solicitation, advertising Testing for interest, soliciting OK, though notices needed and
materials may be exhibits on SEC filing; potential to keep
confidential SEC filings during this time
Initial disclosures Financial statements for
past two years, plus
offering circular
Same as tier 1, plus audited financials
Disclosure to buyers? Circular or most recent Tier 2 report due to buyers by specific time
before sale
Ongoing disclosures File exit report at end of
offering
Yes, if 300+ holders; annual,
semiannual, and current events.
Limitation on need for full Exchange Act
registration
Securities restriction Unrestricted; affiliates have some limitations
Allowed securities? Asset backed-securities banned
Integration safe harbor Exists; allows non-US and crowd-funding to be separate
Reg. A – Continued

26. 506(b), 506(c), and Reg. A Tier 2
Issue 506(b) 506(c) Reg. A Tier 2
State law
regulations?
Preempted Preempted Preempted
Maximum amount
raised?
Unlimited Unlimited $75 M in 12 months
Per investor
maximums?
Unlimited Unlimited Up to 10% of greater of
unaccredited investor’s net
worth or net income;
unlimited for accredited
Investor limitationsUnlimited
accredited, and
35 sophisticated
non-accredited;
self-certification
standard
Accredited only,
and issuer must
take steps to
certify they are
accredited
Unlimited accredited (self-
certified), unlimited non-
accredited

27. Issue 506(b) 506(c) Reg. A Tier 2
Issuer limitations No bad actors No bad actorsCannot be public, shell
company, bad actor,
those failing certain
SEC compliance rules
Solicitation,
advertising
Banned Soliciting of
anyone is
allowed
Testing for interest,
soliciting OK
Initial disclosuresNon-accredited: Equivalents
of what they get in registered
offering, plus anything
accredited investor can get
For accredited, see 506(c)
Optional; must
be available to
answer
questions
Financial statements
for past two years
disclosed, plus
offering circular with
audited financials
506(b), 506(c), and Reg. A Tier 2 (cont.)

28. 506(b), 506(c), and Reg. A Tier 2 (cont.)
Issue 506(b) 506(c) Tier 2
Ongoing
disclosures
Form Ds Form Ds Yes, if 300+ holders;
annual, semiannual,
and current events. But
special exemption from
Exchange Act
registration
Share restrictionRestricted for
a year
Restricted for
a year
Unrestricted; affiliates
still have some limits
Allowed
securities?
ABS not
specifically
banned
ABS not
specifically
banned
Asset backed-securities
banned

29. Integration – 506(b) and 506(c) Offers
▪Whether multiple securities offerings should be treated as a single
offering.
▪Rule 152 safe harbor for Reg D and Reg CF
▪506(b) and 506(c) Offerings are generallynot integratedif separated by
more than30 calendar days.
▪If a 506(b) offering is followed within 30 days of a 506(c), the issuer must
ensure that:
▪Purchasers in the 506(b) were not solicited by general solicitation from the 506(c), or
▪The issuer has a “pre-existing substantive relationship” with those purchasers.
29

30. Integration – Reg D and Reg CF Offerings
▪An offering under Reg D will not be integrated with a Reg CF offering if
they are part of distinct offerings with compliance tailored to each
exemption.
▪General solicitation in a Reg D 506c offering will not automatically "taint"
a Reg CF exemption; however,communications must be clearly
segmentedbetween offerings.
▪The issuer must not use Reg CF advertising or communications to
promote or “condition the market” for the Reg D offering, or vice versa.
30

31. State Blue Sky Laws
▪Most states require securities offerings to be registered with the state's
securities regulator unless a specific exemption applies.
▪Brokerage firms, investment advisers, and individual brokers participating
in securities offerings must be licensed and registered in the state.
▪State blue sky laws include anti-fraud provisions, making issuers liable for
false statements or omissions and empowering state regulators and
investors to pursue legal action for violations.
▪States may impose limits on the number of people who can be offered
and sold securities, limitations on commissions, restrictions on general
solicitation or advertising, and requirements to use state-registered
broker-dealers for certain offerings.
▪Many offerings, especially those qualifying as “covered securities” under
federal law are exempt from state registration but may still require notice
filings and remain subject to state anti-fraud laws.
31

32. California Rule 25102(f)
▪Limited Offering Exemption from the securities registration requirements for private
securities sales such as sales of stock to founders, officers, directors, accredited and a
limited number of unaccredited investors.
▪Sales may not be made to more than 35 unaccredited investors (excluding certain
insiders and affiliates) and unlimited number of to accredited investors and company
insiders (officers, directors, affiliates).
▪Purchasers must have either a preexisting personal or business relationship with the
issuer or its principals, or:
▪Have sufficient business or financial experience (or have unaffiliated professional
advisers) to be reasonably assumed to protect their own interests in the transaction.
▪The offering cannot involve general advertising or public solicitation.
▪Each purchaser must represent they are buying for their own account and not with the
intent to resell or distribute the securities.
▪The issuer must file a Limited Offering Exemption Notice (often called a 25102(f) filing)
with the California Department of Financial Protection and Innovation, usually within 15
days of the first sale.
32

33. Intrastate Offerings
▪Rule 147 is an SEC rule providing a safe harbor exemption for intrastate
securities offerings under Section 3(a)(11) of the Securities Act of 1933.
▪The issuer must be incorporated and have its principal place of business
in the same state where the offering takes place.
▪All offers and sales must be made only to residents of that state.
▪The issuer must meet one of several "80% tests," such as deriving 80% of
its revenues, assets, or proceeds from within the state or having 80% of
its employees based there.
▪The rule restricts resale of securities to non-residents for at least six
months to maintain the intrastate character.
33

34. Rule 144 and Secondary Sales for private
companies
▪Rule 144 is an SEC safe harbor that allows holders of restricted or control
securities to resell them without registration.
▪Restricted securities issued bynon-reporting companies (private
companies)must be held for at leastone yearbefore resale.
▪Affiliates (like officers, directors, or large shareholders) can sell only up to 1% of
the company’s outstanding shares.
▪Affiliates must file Form 144 with the SEC if sales exceed 5,000 shares or
$50,000 in any three-month period.
▪Certain holding period tacking rules apply
34

35. Tender Offers – Reg 14E
▪Securities Exchange Act of 1934 and SEC regulations
▪Regulation 14E
▪Applies to any tender offer for securities, equity or debt, whether by issuers or third
parties.
▪Prohibits manipulative or deceptive acts in connection with tender offers.
▪Requires that tender offers remain open for at least 20 business days from the first
public announcement, giving shareholders time to consider the offer.
▪Specifies processes for announcing, extending, or withdrawing tender offers with
transparency and fairness.
▪Tender offers must be extended if the offeror buys securities during the offer period,
to allow all shareholders equal opportunity.
▪Requires disclosure documents like the Schedule TO (Tender Offer Statement),
including detailed information about terms of the offer, identity of the offeror, source
of funds, plans after acquisition, and other material facts.
35

36. Rule 701
▪Rule 701 is a federal securities law exemption under the Securities Act of
1933 that allows private companies to issue equity compensation—such
as stock options, restricted stock units (RSUs), and other types of
securities—to employees, consultants, advisors, and certain service
providers without registering the offering with the SEC.
▪“Eligible recipients” are employees, officers, directors, consultants
(natural persons), and advisors providing bona fide services unrelated to
securities sales or market promotion
▪Aggregate sales price or amount of securities sold during any consecutive
12-month period must not exceed the greatest of:
▪$1 million,
▪15% of the total assets of the issuer (based on the latest balance sheet), or
▪15% of the outstanding amount of the class of securities being offered and sold
36

37. Rule 701 continued
▪Ff the total sales exceed $10 million in a 12-month period, the company
must provide key disclosures to recipients before the securities are
delivered, which include:
▪Financial statements (audited if the company has them),
▪A summary of the compensatory plan,
▪Risk factors associated with investing in the company’s securities.
▪No SEC registration required for the offering, reducing regulatory burdens.
▪Securities issued under Rule 701 may still be subject to resale restrictions
under other rules like Rule 144
37

38. Regulation S – foreign sales
▪Regulation S provides an exemption from the registration requirements of
the Securities Act of 1933 for offers and sales of securities made outside
the United States, and no directed selling efforts are made in the U.S.
▪Securities can be sold to foreign investors, both accredited and non-
accredited.
▪Securities sold under Regulation S are subject to a distribution
compliance period—in general, 40 days for reporting issuers and one year
for non-reporting issuers—during which resale in the U.S. is restricted.
▪No Federal Filing Required.
▪Issuers typically must implement reasonable procedures to ensure
compliance with offshore sale requirements, such as verifying that
purchasers are non-U.S. persons
38

39. Initial Coin Offering (ICO)
39
An ICO is a fundraising mechanism in which new projects sell their
underlying crypto tokens in exchange for bitcoin and ether.
Similar to an Initial Public Offering (IPO) in which investors purchase
shares of a company.
Based on tech like ERC20 Token Standard
Investors send funds (usually bitcoin or ether) to a smart contract that
stores the funds and distributes an equivalent value in the new token
Often “pre-sold” to raise money to build the platform
Tokens may have “utility” or security
Traded on exchanges

40. Is my token a security?
▪SEC Chairman and CFTC Chairman’s February Testimony before the Committee of Banking, Housing, and Urban Affairs:
“…structures of ICOs that I have seen involve the offer and sale of securities and directly implicate the securities registration
requirements and other investor protection provisions of our federal securities laws.”
▪SEC Chairman Clayton: Market professionals and gatekeepers must act responsibly and hold themselves to high standards. In
the ICO space "they can do better”.
▪SEC warned against ICO Sponsors not making adequate disclosures and cautioned market participants against promoting or
touting the offer and sale of coins without first determining whether the securities laws apply to those actions.
▪Family Resemblance test (Reeves)
▪Multi factor test applied to notes
▪Howey Test
▪ An investment of money, in a common enterprise, with a reasonable expectation of profits, and to be derived from the
entrepreneurial or managerial efforts of others.
▪The Risk Capital Test
▪The sale of membership to a country club was a security; substance over form
▪Investors were risking their capital in expectation of receiving the benefits of club membership, which was in the control
of the issuers of the membership

41. Current SEC guidance
▪The SEC’s 2025 three-pronged framework:
▪The initial sale context (was the token marketed as an investment?),
▪The ongoing functional utility of the token on a decentralized network,
▪The degree of issuer or founding team control over the token and network.
▪Tokens that are sold with promises of profits or price appreciation based
on centralized efforts (such as many ICOs, governance tokens tied to
revenue sharing, or pre-mined tokens) are typically treated as securities.
▪Tokens that serve pure utility functions, represent decentralized
governance, or are widely distributed and not motivated by profit
expectations (e.g., Ether post-Merge, certain stablecoins) generally are
not securities.
▪Legal precedent cases such as SEC v. Ripple and SEC v. LBRY have
reinforced that some tokens are securities based on how they are
marketed and used.
41

42. Crypto Regulation Shift
42
DOJ disbanded its cryptocurrency enforcement unit
Ten crypto cases retracted
SEC Crypto Task Force aims to:
Draw clear regulatory lines.
Provide realistic paths for registration.
Craft sensible disclosure frameworks.
Collaborate with other federal and international agencies.
Recent court cases: Bored Ape non fungible token (NFT) ruled not a security cf Dapper Labs’ NFT;
DraftKings NFT

43. Market Structure Bill—CLARITY Act
Clarifies that many digital assets—especially those tied to blockchain
systems—are digital commodities, not securities.
If a digital commodity is sold through an investment contract, the asset is
an “investment contract asset,” excluded from the definition of securities.
The SEC retains authority over primary market activities, such as
fundraising through digital asset sales.
The bill introduces a pathway for blockchain systems to be certified as
“mature,” allowing them to bypass certain SEC reporting requirements.
The CLARITY Act (H.R. 3633) has passed the U.S. House of Representatives
as of July 2025 and is now under review in the Senate, where a related
discussion draft is being developed.
43

44. Section 10(b) of the Securities Exchange Act
of 1934: Anti-Fraud Liability
▪Prohibits employing any device, scheme, or artifice to defraud, making
untrue statements of material fact or omitting material facts necessary to
avoid misleading investors, or engaging in any act, practice, or course of
business that operates as a fraud or deceit in connection with securities
transactions.
▪Applies to all participants in securities transactions including issuers,
officers, directors, brokers, and others who knowingly or recklessly
engage in fraudulent conduct.
▪Covers both public offerings and secondary market transactions.
44

45. 10b-5 continued
▪Liability under Rule 10b-5 and Section 10(b) requires proof of scienter—
intent to deceive, manipulate or defraud.
▪Some other securities laws' anti-fraud provisions require only negligence
or reckless disregard (e.g., Section 17(a)(2) of the Securities Act).
▪The SEC can bring civil enforcement actions seeking injunctions,
disgorgement, fines, and bars.
▪Investors have a private right of action to sue for damages if harmed by
securities fraud under Rule 10b-5.
▪Includes misstatements or omissions in registration statements,
prospectuses, periodic reports, press releases, insider trading, market
manipulation, and tender offers.
45

46. Securities Fraud
▪Recent fraud cases: FTX, Theranos, Nikola
▪March 28, 2025 - Founder of Frank was convicted of defrauding
JPMorgan by inflating the number of users her company had to secure a
$175 million acquisition deal. Prosecutors alleged that she fabricated data
to make it appear as though Frank had over 4 million users, when in
reality, it had only about 300,000. The founder was sentenced to 7 years in
prison.
46

47. Preparing for a public offering
▪Demand Registration Rights: Investors have the right to require the
company to file a registration statement for an IPO or other public offering
to sell their shares.
▪Piggyback Registration Rights: Investors can participate in a registration
initiated by the company or other stockholders to sell their shares
alongside the company’s offering.
▪IRAs generally include provisions requiring investors to agree to lock-up
periods post-IPO, restricting resale of shares for a certain period (usually
180 days) to stabilize market price.
▪These registration rights typically come withlimitations such as cutbacks
andtransfer restrictionsto protect the company’s interests
47

48. Contact Us
48
Roger Royse, Partner
Haynes and Boone, LLP
+1.650.687.8820
[email protected]
LinkedIn https://www.linkedin.com/in/rogerroyse/
https://www.roysestartups.com/

49. DEAD ON ARRIVAL BOOK
49
Dead on Arrival: How to Avoid the Legal Mistakes That
Could Kill Your Start-Up.
This book outlines the legal mistakes that start-up
companies and their lawyers make on their way to
success and how to avoid making those mistakes. Some
of those mistakes can be rectified, but many will result in
your start-up company being Dead on Arrival when it
looks for financing or acquisition opportunities. Knowing
what those mistakes are and how to avoid them is
essential to starting and building a successful company.
This was published in 2012 and is available in both print
and audio formats.

50. 10,000 Startups
50
Legal Strategies For Startup Success
Managing a startup is challenging enough. Don't allow
legal planning to burden your business! Set yourself up
for success with "10,000 Startups", a unique book that
describes impactful legal planning for startup companies.
Author Roger Royse takes you through the successful
outcomes that result from strategic legal planning.
Startup law is complex and covers a wide range of legal
disciplines. This book highlights the questions you should
ask to ensure that you have the best possible chance for
success.