Category: Securities Law

ACI's 3rd National Forum on Securities Litigation & Enforcement

The National Law Review is pleased to bring you information about the upcoming American Conference Institute National Forum on Securities Litigation & Enforcement.

ACI Securities

When

Thursday, February 27 – Friday, February 28 ,2014

Where

Washington, D.C.

ACI’s 3rd National Advanced Forum on Securities Litigation and Enforcement, this time in Washington, DC, is the only event in the industry where experienced in-house counsel, leading litigators, renowned jurists, and regulatory and enforcement officials from federal and state agencies will assemble in our nation’s capital to provide the highest level insights on the most current developments in the field.

Now, more than ever, lenders/issuers, officers and directors, underwriters, auditors, investment managers and broker-dealers need to know how to prepare for and respond to litigation, and how to deal with regulation and enforcement initiatives from various federal and state agencies.

In response, ACI has developed the 3rd installment of its lauded Securities Litigation and Enforcement conference, which will provide practitioners with the knowledge and expert strategies that they need in order to prepare for and defend against the newest claims and claimants.

Join us in Washington, DC, and hear from a highly regarded faculty featuring in-house counsel from the top financial services companies and leading outside counsel from law firms that excel in securities litigation, renowned judges, and key government bodies, including SEC, FINRA, PCAOB, U.S. Attorney’s Offices (EDNY & SDNY), and various state securities departments.

American Conference Institute National Forum on Securities Litigation & Enforcement

The National Law Review is pleased to bring you information about the upcoming American Conference Institute National Forum on Securities Litigation & Enforcement.

ACI Securities

When

Thursday, February 27 – Friday, February 28 ,2014

Where

Washington, D.C.

ACI’s 3rd National Advanced Forum on Securities Litigation and Enforcement, this time in Washington, DC, is the only event in the industry where experienced in-house counsel, leading litigators, renowned jurists, and regulatory and enforcement officials from federal and state agencies will assemble in our nation’s capital to provide the highest level insights on the most current developments in the field.

Now, more than ever, lenders/issuers, officers and directors, underwriters, auditors, investment managers and broker-dealers need to know how to prepare for and respond to litigation, and how to deal with regulation and enforcement initiatives from various federal and state agencies.

In response, ACI has developed the 3rd installment of its lauded Securities Litigation and Enforcement conference, which will provide practitioners with the knowledge and expert strategies that they need in order to prepare for and defend against the newest claims and claimants.

Join us in Washington, DC, and hear from a highly regarded faculty featuring in-house counsel from the top financial services companies and leading outside counsel from law firms that excel in securities litigation, renowned judges, and key government bodies, including SEC, FINRA, PCAOB, U.S. Attorney’s Offices (EDNY & SDNY), and various state securities departments.

FINRA (Financial Industry Regulatory Authority) Issues New Rules on Securities Borrowing, Customer Protection and Callable Securities

Katten Muchin

 

On December 4, 2013 the Securities and Exchange Commission approved rules proposed by the Financial Industry Regulatory Authority regarding securities loans and borrowings, permissible use of customers’ securities, and callable securities. For securities loans and borrowings, Financial Industry Regulatory Authority proposed new Rule 4314, which requires a member firm acting as an agent in a securities lending or borrowing transaction to disclose its capacity as agent. The rule aims to clarify whether parties are acting as principals or agents when entering into security lending or borrowing agreements. When member firms loan securities to or borrow securities from a counterparty acting in an agency capacity, the rule requires the member firm to maintain books and records to reflect the details of the transaction with the agent and each principal on whose behalf the agent is acting as well as the details of the transaction. The rule allows a member firm that is a party to a loan or borrowing agreement with another member firm to liquidate the transaction whenever the other party becomes subject to one of the specified liquidation conditions. Additionally, no member firm can lend or borrow any security to or from any person that is not a member of FINRA, including any customer, except pursuant to a written agreement. Each member firm subject to Securities Exchange Act Rule 15c3-3 that borrows fully paid or excess margin securities from a customer must comply with the Securities Exchange Act Rule 15c3-3 requirements for a written agreement between the borrowing member firm and lending customer.

FINRA also adopted new Rule 4330 regarding the permissible use of customers’ securities. The rule prohibits a member firm from lending securities held on margin for a customer that are eligible to be pledged or loaned unless the member firm first obtains written authorization from the customer permitting the lending arrangement. The rule also requires a member firm that borrows fully paid or excess margin securities carried for a customer account to comply with Securities Exchange Act Rule 15c3-3, provide notices to customers in compliance with Securities Exchange Act Section 15(e), and notify FINRA at least 30 days prior to the borrowing. Before any member firm engages in a securities borrowing transaction with a customer, the rule requires the member firm to have reasonable grounds for believing that the customer’s loan of securities is appropriate for its financial situation and needs and that the member firm provide certain disclosures to the customer in writing. A FINRA member firm is also required to keep books and records evidencing compliance with these rules.

Finally, FINRA adopted new Rule 4340 to clarify requirements applicable to callable securities. The rule requires each member firm with possession or control of a callable security, in the event of a partial redemption or call, to identify such securities and establish an impartial lottery system to allocate the securities among its customers. The member firm must also provide written notice, which may be electronic, to new customers opening an account and to all customers once a year that describes how customers may access the allocation procedures on the member firm’s website or obtain hard copies upon request. The rule prohibits a member firm from allocating securities to its own or an associated person’s account during a redemption until all other customers’ positions have been satisfied. This prohibition applies only when the redemption is offered on terms favorable to the called parties. When on unfavorable terms, a member firm cannot exclude its positions or those of its associated persons from the redemption.

The proposed rules with links to amendments, comments, and the approval order may be accessed here.

 

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Senior U.S. Officials Discuss Foreign Corrupt Practices Act (FCPA) Enforcement Trends and Activity

Morgan Lewis

On November 18–21, U.S. regulators attended the 30th International Conference on the Foreign Corrupt Practices Act (FCPA), where they discussed the near-record amount of FCPA penalties in 2013 and disclosed that there are more than 150 ongoing FCPA investigations. Regulators from the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) also explained new developments in cross-border cooperation as well as their efforts to prosecute individual FCPA defendants.

Combined FCPA Penalties

According to Charles E. Duross, Head of the DOJ’s FCPA Unit and Deputy Chief of the Fraud Section, the FCPA Unit is “busier today than [it] ever has been” investigating and prosecuting FCPA misconduct. Although the DOJ may not have initiated as many enforcement actions to date in 2013 as in years past, Duross characterized 2013 as “the fifth biggest year in [the FCPA’s] history in terms of overall penalties” and predicted “that the ranking will move up before the end of the year.” As explained by Duross, “We have a pretty substantial pipeline of matters, and I actually have every reason to expect that, in the coming weeks and months, you will see even more activity, [including] more standard cases as well as . . . ‘grand corruption’ cases.”

Ongoing Investigations

Duross estimated that the DOJ is currently investigating “more than 150 cases” of potential FCPA violations and expects the DOJ to bring “very significant cases, top 10 quality type cases” in 2014. Duross stated that, while the number of investigations fluctuated due to the issuance of declinations, the DOJ has received a “constant inflow” of violations information, ranging from voluntary disclosures to whistleblower complaints. On November 15, the SEC’s Office of the Whistleblower reported that it logged 3,238 whistleblower tips and complaints in 2013, resulting in a combined total of 6,573 tips and complaints since the initiation of the whistleblower program in August 2011.[1] Approximately 150 of those 3,238 tips and complaints have involved FCPA issues, including “some very, very good whistleblower complaints,” according to according to Kara N. Brockmeyer, Chief of the SEC’s FCPA Unit. While the SEC has yet to announce any whistleblower awards for FCPA cases, the agency announced its largest award to date—more than $14 million—to an anonymous whistleblower last month.[2]

Enhanced International Cooperation and Cross-Border Enforcement

Nearly all of the U.S. regulators speaking at the conference trumpeted the increase in global cooperation and cross-border enforcement. In his November 19 speech, Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, stated that the SEC and DOJ have “capable and committed law enforcement partners worldwide, and their numbers are steadily growing.”[3] The rise in cross-border cooperation and enforcement appears to be attributable, in part, to the enactment of new anticorruption legislation in countries ranging from Brazil to Latvia. As explained by Ceresney:

Over the past five years, we have experienced a transformation in our ability to get meaningful and timely assistance from our international partners. And through our collaborative efforts, the world is becoming a smaller place for corrupt actors. In particular, many of our foreign counterparts have taken important steps this year to strengthen their own anticorruption laws and step up their enforcement efforts. For example, Brazil passed the Clean Company Law, an anticorruption law that, for the first time, imposes criminal liability on companies that pay bribes to foreign government officials. More expansive in its reach than the FCPA, this new law forbids all companies that operate in Brazil from paying bribes to any government official, whether domestic or foreign. In the U.K., the Serious Fraud Office announced its first prosecution case under the Bribery Act. In Canada, the government enacted amendments strengthening the Corruption of Foreign Public Officials Act and prevailed in its first litigated case against an individual for violating this law. And recently, Latvia became the newest country to join the [Organisation for Economic Co-operation and Development] Working Group on Bribery.

As other countries begin to step up their efforts to combat corruption, it makes our job easier. Countries with strong anti-corruption laws are often great partners to us in combating corruption. Scrutiny from the local government, in addition to us, will often be a strong deterrent to bribery. More and more, our investigations are conducted in parallel with a foreign government.

In remarks made on November 19 at the FCPA conference, Brockmeyer advised attendees that the SEC would start working with more of its foreign counterparts—including those that it has not “necessarily worked with before”—in the future. Ceresney made a similar observation, noting “I am encouraged by the close collaboration [with foreign agencies] and fully expect the pace and extent of our cooperation with foreign agencies to grow in the coming years. Indeed, only recently I have been involved in a case in which we are receiving cooperation from a country that has never before provided any meaningful assistance.”

Continued Focus on Individual Prosecutions

Individuals from both the DOJ and SEC also emphasized their enduring interest in bringing individual FCPA violators to justice. As explained by Ceresney, “A core principle of any strong enforcement program is to pursue culpable individuals wherever possible. . . . Cases against individuals have great deterrent value as they drive home to individuals the real consequences to them personally that their acts can have. In every case against a company, we ask ourselves whether an action against an individual is appropriate.”

Ceresney acknowledged that FCPA enforcement actions against individuals pose unique challenges. For instance, regulators may be unable to reach individuals in foreign jurisdictions, and remedies are often limited or unenforceable. Regulators must also confront difficulties in obtaining foreign documents, collecting evidence, and gaining access to overseas witnesses. According to Ceresney, the SEC is overcoming these challenges by “expanding the availability and use of Memoranda of Understanding with international financial regulators to obtain bank records, other documents, and testimony; using border watches and other methods of obtaining information from foreign nationals; subpoenaing U.S.-based affiliates of foreign companies; and more aggressively seeking videotaped depositions that [the SEC] can use at trial if [it] cannot secure live testimony.”

The SEC currently has pending FCPA actions against executives of three companies, Magyar Telekom, Siemens, and Noble. In April 2013, the SEC obtained its sec
ond-highest penalty ever assessed against an individual in an FCPA case when one of the Siemens executives agreed to pay a $275,000 fine.[4] According to Ceresney, “these cases have sent an unambiguous message that [the SEC] will vigorously pursue cases to hold individuals accountable for FCPA violations—including executives at the highest rungs of the corporate ladder.”

The DOJ similarly has pending FCPA actions against individuals and, according to Duross, is firmly committed to holding individuals accountable for FCPA misconduct. In support of this commitment, Duross cited recent actions against executives from BizJet, Maxwell Technology, and Direct Access Partners. It is worth noting, however, that the DOJ also brought actions against individuals associated with BSG Resources Ltd. and Willbros in 2013. Duross warned that resolutions for corporations—which occasionally precede actions initiated against individuals—do not immunize individual bad actors from subsequent criminal prosecution.

Increased Personnel Resources

According to Duross, the DOJ’s FCPA Unit “has more resources today than at any time before” and is working with “every major U.S. Attorneys’ Office in the United States” on FCPA matters. Duross explained that U.S. Attorneys’ Offices “serve as a force multiplier” for the FCPA Unit and provide a “deep bench of talent” and knowledge about the local jurisdictions. The addition of human resources—including trial attorneys, paralegal assistance, and translators—has improved the DOJ’s ability to investigate and prosecute FCPA misconduct.

[1]. U.S. Sec. & Exch. Comm’n, 2013 Annual Report to Congress on the Dodd-Frank Whistleblower Program at 1, 20 (Nov. 15, 2013), availablehere.

[2]. Press Release, U.S. Sec. & Exch. Comm’n, SEC Awards More Than $14 Million to Whistleblower (Oct. 1, 2013), available here.

[3]. Andrew Ceresney, Co-Dir., Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Keynote Address at the International Conference on the Foreign Corrupt Practices Act (Nov. 19, 2013), available here.

[4]. U.S. Sec. & Exch. Comm’n, Litigation Release No. 22676, Former Siemens Executive Uriel Sharef Settles Bribery Charges (Apr. 16, 2013),available here.

 

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Investment Management Legal and Regulatory Update – October 2013

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SEC Issues Guidance Update for Investment Companies that Invest in Commodity Interests and Announces New Risk and Examinations Office

The staff of the Division of Investment Management has issued a Guidance Update that summarizes the views of the Division regarding disclosure and compliance matters relevant to funds that invest in commodity interests. The staff also announced the creation of a Risk and Examinations Office within the Division of Investment Management that will accompany the SEC’s Office of Compliance Inspections and Examinations (OCIE) on exam visits.

Disclosure of Derivatives and Associated Risks. Any principal investment strategies disclosure related to derivatives should be tailored specifically to how a fund expects to be managed and should address those strategies that the fund expects to be the most important means of achieving its objectives and that it also anticipates will have a significant effect on its performance. In determining the appropriate disclosure, a fund should consider the degree of economic exposure the derivatives create, in addition to the amount invested in the derivatives strategy. This disclosure also should describe the purpose that the derivatives are intended to serve in the portfolio (e.g., hedging, speculation, or as a substitute for investing in conventional securities), and the extent to which derivatives are expected to be used. Additionally, the disclosure concerning the principal risks of the fund should similarly be tailored to the types of derivatives used by the fund, the extent of their use, and the purpose for using derivatives transactions.

Prior Performance Presentation. A newly registered fund that invests in commodity interests and that includes in its registration statement information concerning the performance of private accounts or other funds managed by the fund’s adviser is responsible for ensuring that such information is not materially misleading. Specifically, a fund that includes the performance of other funds or private accounts should generally include the performance of all other funds and private accounts that have investment objectives, policies, and strategies substantially similar to those of the fund.

Legend Requirement. Rule 481 under the Securities Act requires a fund to provide a legend on the outside front cover page that indicates that the SEC has not approved or disapproved of the securities or passed upon the accuracy or adequacy of the disclosure in the prospectus and that any contrary representation is a criminal offense. The staff will not object if a fund that invests in commodity interests includes in the legend language that also indicates that the CFTC has not approved or disapproved of the securities or passed upon the accuracy or adequacy of the disclosure in the prospectus.

Compliance and Risk Management. Day-to-day responsibility for managing a fund’s portfolio, including any commodity interests and their associated risks, rests with the fund’s investment adviser. In addition, the fund’s board generally oversees the adviser’s risk management activities as part of the board’s oversight of the adviser’s management of the fund. The staff expects that funds and their advisers would adopt policies and procedures that address, among other things, consistency of fund portfolio management with disclosed investment objectives and policies, strategies, and risks.

Each fund should have in place policies and procedures that are sufficient to address the accuracy of disclosures made about the fund’s use of derivatives, including commodity interests, and associated risks, as well as consistency of the fund’s investments in these derivatives with the fund’s investment objectives. For example, these policies and procedures should be reasonably designed to prevent material misstatements about a fund’s use of derivatives, including commodity interests, and the associated risks.

New Risk and Examinations Office. The update notes that a Risk and Examinations Office has recently been created within the Division of Investment Management to analyze and monitor the risk management activities of investment advisers, investment companies, the investment management industry and new products. The group will work closely with OCIE to make onsite visits to investment management firms.

Source: SEC Division of Investment Management Guidance, August 2013, 2013-05.

SEC Approves Registration Rules for Municipal Advisors

State and local governments that issue municipal bonds frequently rely on advisors to help them decide how and when to issue the securities and how to invest proceeds from the sales. Prior to passage of the Dodd-Frank Act in 2010, municipal advisors were not required to register with the SEC. This left many municipalities relying on advice from unregulated advisors. After the Dodd-Frank Act became law, the SEC established a temporary registration regime for municipal advisors that prohibited any municipal advisor from providing advice to, or soliciting, municipal entities or other covered persons without being registered. More than 1,100 municipal advisors have since registered with the SEC. The SEC recently adopted final rules that establish a permanent registration regime for municipal advisors.

Registered municipal advisors will also likely be subject to additional new regulation from the Municipal Securities Rulemaking Board (MSRB). In September 2011, the MSRB withdrew several rule proposals pertaining to municipal advisors pending adoption by the SEC of a permanent registration regime for municipal advisors. Among the proposals was a rule regulating political contributions by municipal advisors. The MSRB had previously indicated that it would resubmit the withdrawn rule proposals once a final definition of the term “municipal advisor” was adopted by the SEC.

Proposed Rule

In 2010, the SEC proposed a rule governing the permanent registration process. The proposal defined “municipal advisor” broadly and would have required municipal advisor registration of appointed board members of municipalities and people providing investment advice on all public funds. The SEC received more than 1,000 comment letters on the proposal, most of which raised concerns about the broad reach of the proposal.

Final Rule

The final rule requires a municipal advisor to register with the SEC if it:

  • provides advice on the issuance of municipal securities or about certain “investment strategies” or municipal derivatives; or
  • undertakes a solicitation of a municipal entity or obligated person.

The rule clarifies who is and is not a “municipal advisor” and offers guidance on when a person is providing “advice” for purposes of the municipal advisor definition. The rule exempts employees and appointed officials of municipal entities from registration and limits the type of “investment strategies” that will result in municipal advisor status. Additionally, instead of the proposed approach that would have required individuals associated with registered municipal advisory firms to register separately, the final rule requires firms to furnish information about these individuals.

Defined Terms

Advice. A person is providing “advice” to a municipal entity or an “obligated person” based on all of the relevant facts and circumstances, including whether the advice:

  • involves a recommendation to a municipal entity;
  • is particularized to the specific needs of a municipal entity; or
  • relates to municipal financial products or the issuance of municipal securities.

Advice, however, does not include providing certain general information.

An “obligated person” is an entity such as a non-profit university or non-profit hospital that borrows the proceeds from a municipal securities offering and is obligated by contract or other arrangement to repay all or some portion of the amount borrowed.

Investment Strategies. A person providing advice to a municipal entity or an “obligated person” with respect to “investment strategies” only has to register if such advice relates to:

  • the investment of proceeds of municipal securities;
  • the investment of municipal escrow funds; or
  • municipal derivatives.

Exemptions from the Municipal Advisor Definition

The following persons conducting the specified activities would not be required to register as a municipal advisor:

Registered Investment Advisers. Registered investment advisers and associated persons do not have to register if they provide investment advice in their capacities as registered investment advisers, such as providing advice regarding the investment of the proceeds of municipal securities or municipal escrow investments.

This exemption does not apply to advice on the structure, timing, and terms of issues of municipal securities or municipal derivatives. The SEC considers advice in these areas as outside the focus of investment adviser regulation.

Independent Registered Municipal Advisor. Persons who provide advice in circumstances in which a municipal entity has an independent registered municipal advisor with respect to the same aspects of a municipal financial product or issuance of municipal securities do not have to register, provided that certain requirements are met and certain disclosures are made.

Banks. Banks do not have to register to the extent they provide advice on certain identified banking products and services, such as investments held in deposit accounts, extensions of credit, funds held in a sweep account or investments made by a bank acting in the capacity of bond indenture trustee or similar capacity.

This exemption does not apply to banks that engage in other municipal advisory activities, such as providing advice on the issuance of municipal securities or municipal derivatives, in part because municipal derivatives were a source of significant losses by municipalities in the financial crisis.

Underwriters. Brokers, dealers and municipal securities dealers serving as underwriters do not have to register if their advisory activities involve the structure, timing and terms of a particular issue of municipal securities.

Registered Commodity Trading Advisor. Registered commodity trading advisors and their associated persons do not have to register if the advice they provide relates to swaps.

Swap Dealers. Registered swap dealers do not have to register as municipal advisors if they provide advice with respect to swaps in circumstances in which a municipal entity is represented by an independent advisor.

Public Officials and Employees. Public officials do not have to register to the extent that they are acting within the scope of their official capacity. This exemption addresses an unintended consequence of the proposed rule that generated significant public comment and created the impression that public officials and municipal employees would be covered if they provided “internal” advice.

This exemption covers persons serving as members of a governing body, an advisory board, a committee, or acting in a similar official capacity as an official of a municipal entity or an obligated person. For instance, it covers:

  • members of a city council, whether elected or appointed, who act in their official capacity; and
  • members of a board of trustees of a public or private non-profit university acting in their official capacity, where the university is an obligated person by virtue of borrowing proceeds of municipal bonds issued by a state governmental educational authority.

Similarly, this exemption covers employees of a municipal entity or an obligated person to the extent that they act within the scope of their employment.

Attorneys. Attorneys do not have to register if they are providing legal advice or traditional legal services with respect to the issuance of municipal securities or municipal financial products.

This exemption does not apply to advice that is primarily financial in nature or to an attorney representing himself or herself as a financial advisor or financial expert on municipal advisory activities.

Accountants. Accountants do not have to register if they are providing accounting services that include audit or other attest services, preparation of financial statements, or issuance of letters for underwriters.

Registration Forms

The final rule requires municipal advisory firms to file the following through EDGAR:

  • Form MA to register as a municipal advisor; and
  • Form MA-I for each individual associated with the firm who engages in municipal advisory activities.

The temporary registration regime will remain in place until December 31, 2014. The new rule requires municipal advisors to register on a staggered basis beginning July 1, 2014. The expiration date of the temporary rules will be extended in order to allow municipal advisors to continue to remain temporarily registered during the staggered compliance period.

Sources: SEC Approves Registration Rules for Municipal Advisors, SEC Press Release 2013-185 (September 18, 2013); Registration of Municipal Advisors, SEC Release No. 34-70462 (September 18, 2013).

SEC Eliminates the Prohibition on General Solicitation and General Advertising in Certain Private Offerings to Accredited Investors

As we reported in our July Client Alert, the SEC amended Regulation D to implement a Jumpstart Our Business Startups Act (JOBS Act) requirement to lift the ban on general solicitation and general advertising for certain private offerings.

JOBS Act

Congress passed the JOBS Act in 2012, which directed the SEC to remove the prohibition against general solicitation and general advertising for securities offerings relying on Rule 506, provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers are accredited investors.

While issuers will be able to widely solicit and advertise for potential investors, the JOBS Act required the SEC to adopt rules that “require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.” In other words, there is no restriction on who an issuer can solicit, but an issuer faces restrictions on who is permitted to purchase its securities.

Rule 506(c)

The addition of 506(c) to the existing Rule 506 permits issuers, including hedge funds and other private funds, to use general solicitation and general advertising to offer their securities provided that:

  • all purchasers of the securities are accredited investors (as defined in Rule 501);
  • the issuer takes reasonable steps to verify that the investors are accredited investors;
  • all other conditions of the Rule 506 exemption are met; and
  • Form D is completed and the box is checked indicating that Rule 506(c) is being relied upon.

Verification of Accredited Investor Status

Under the new rules, the issuer will need to take reasonable steps to verify that each investor is accredited. Whether the steps taken are “reasonable” will be a principles-based determination by the issuer, in the context of the particular facts and circumstances of each purchaser and transaction. The SEC noted that the issuer should consider the nature of the purchaser and the amount and type of information that the issuer has about the purchaser; the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering; and the terms of the offering, such as a minimum investment amount.

In response to comments received with respect to the SEC’s original rule proposal, the amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to verify that purchasers are accredited investors. The methods described in the final rule include the following:

  • Verification of Income. Review IRS forms filed for last two years and obtain a written representation of expected income for the current year.
  • Verification of Net Worth. Review documentation related to assets (bank and brokerage statements, CDs and independent appraisal reports) and liabilities (credit reports).
  • Third Party Verification. Obtain a written confirmation that a person is an accredited investor from a broker-dealer, investment adviser, attorney or CPA.
  • Existing Accredited Security Holder. For any investor who invested in an issuer’s prior Rule 506 offering as an accredited investor and remains an investor, obtain a written certification (at the time of a Rule 506(c) sale) that he or she still qualifies as an accredited investor.

Preservation of Existing Rule

The existing provisions of Rule 506 as a separate exemption are not affected by the final rule. Issuers conducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren’t subject to the new verification rule.

Form D

In connection with these changes, Form D has been amended to require issuers to indicate whether they are relying on 506(c), which permits general solicitation and advertising in a Rule 506 offering.

The rule amendments became effective September 23, 2013.

Sources: SEC Approves JOBS Act Requirement to Lift General Solicitation Ban, Commission Also Adopts Rule to Disqualify Bad Actors from Certain Offerings and Proposes Rules to Enable SEC to Monitor New Market and Bolster Investor Protections, SEC Press Release 2013-124 (July 10, 2013); Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, SEC Release No. IA-3624 (July 10, 2013).

SEC Adopts Rule to Disqualify “Bad Actors” from Rule 506 Offerings

The SEC recently approved amendments to Rule 506 to set forth the “bad actor” (commonly known as “bad boy”) provisions that could disqualify issuers from relying on the rule. The Dodd-Frank Act directed the SEC to adopt the amendments in order to prevent issuers from relying on the Rule 506 safe harbor if certain “bad actors” were involved in the offering.

As required by the Dodd-Frank Act, the SEC approved disqualifications under Rule 506 that are substantially similar to the disqualifications found in other securities regulations. Persons covered by the bad boy provisions include: issuers; directors, executive officers, other officers participating in the offering, general partners or managing members of issuers; beneficial owners of 20% or more of the issuer’s voting equity securities; investment managers to an issuer that is a pooled investment fund and directors, executive officers, other officers participating in the offering, general partners or managing members of the investment manager; promoters connected with the issuer; persons compensated for soliciting investors as well as the directors, officers, general partners or managing members of any compensated solicitor. The disqualifying events include:

  • securities-related criminal convictions;
  • securities-related court injunctions and restraining orders;
  • final orders of a state securities commission, state insurance commission, state or federal bank, savings association or credit union regulator or the CFTC barring an individual from association with regulated entities or from engaging in securities, insurance or banking business or finding a violation of any law pertaining to fraudulent, manipulative or deceptive conduct;
  • SEC disciplinary orders relating to brokers, dealers, municipal securities dealers, investment advisers and investment companies and their associated persons;
  • SEC cease-and-desist orders related to violations of certain anti-fraud provisions and registration requirements of the federal securities laws;
  • suspension or expulsion from membership in, or suspension or bar from associating with a member of, a securities self-regulatory organization; and
  • SEC stop orders pertaining to the filing of a registration statement or the suspension of an exemption.

Reasonable Care Exception. Under this exception, an issuer would not lose the benefit of the Rule 506 safe harbor if it can show that it did not know and, in the exercise of reasonable care, could not have known that a covered person with a disqualifying event participated in the offering.

Disclosure of Pre-Existing Disqualifying Events. Disqualification applies only for disqualifying events that occur after September 23, 2013, the effective date of this rule. Matters that existed before the effective date of the rule and would otherwise be disqualifying are subject to a mandatory disclosure requirement to investors.

Sources: SEC Approves JOBS Act Requirement to Lift General Solicitation Ban, Commission Also Adopts Rule to Disqualify Bad Actors from Certain Offerings and Proposes Rules to Enable SEC to Monitor New Market and Bolster Investor Protections, SEC Press Release 2013-124 (July 10, 2013); Disqualification of Felons and Other Bad Actors from Rule 506 Offerings, SEC Release No. 33-9414 (July 10, 2013).

SEC Proposes Amendments to Private Offering Rules (Regulation D and Form D)

In partial response to the many comments that the SEC received with respect to its proposed JOBS Act amendments to Rule 506, the SEC recently proposed the following amendments to the private offering rules.

Advance Notice of Sale. Under the proposal, issuers that intend to engage in general solicitation as part of a Rule 506 offering would be required to file the Form D at least 15 calendar days before engaging in general solicitation for the offering. Also, within 30 days of completing an offering, issuers would be required to update the information contained in the Form D and indicate that the offering has ended.

Additional Information about the Issuer and the Offering. Under the proposal, issuers would be required to provide additional information such as:

  • types of general solicitation used;
  • methods used to verify accredited investor status;
  • publicly available website;
  • controlling persons;
  • industry group;
  • asset size;
  • breakdown of investor types (accredited/non-accredited and natural person/entity) and amounts invested; and
  • breakdown of use of proceeds.

Disqualification. Under the proposal, an issuer would be disqualified from using the Rule 506 exemption in any new offering if the issuer or its affiliates did not comply with the Form D filing requirements in a Rule 506 offering.

Legends and Disclosures. Under the proposal, issuers would be required to include certain legends or cautionary statements in any written general solicitation materials used in a Rule 506 offering. The legends would be intended to inform potential investors that the offering is limited to accredited investors and that certain potential risks may be associated with such offerings.

In addition, if the issuer is a private fund and includes information about past performance in its written general solicitation materials, it would be required to provide additional information in the materials to highlight the limitations on the usefulness of this type of information. The issuer also would need to highlight the difficulty of comparing this information with past performance information of other funds. The proposal also requests public comment on whether other manner and content restrictions should apply to written general solicitation materials used by private funds.

Submission of Written General Solicitation Materials to the SEC. Under the proposal, issuers would be required to submit written general solicitation materials to the SEC through an intake page on the SEC website. Materials submitted in this manner would not be available to the general public. As proposed, this requirement would be temporary, expiring after two years.

Guidance to Private Funds about Misleading Statements. In its current form, Rule 156 under the Securities Act provides guidance on when information in mutual fund sales literature could be fraudulent or misleading for purposes of the federal securities laws. Under the proposal, the rule would be amended to apply to the sales literature of private funds.

Comments on the proposal originally were due on September 23, 2013. However, “in light of the public interest,” the SEC re-opened the comment period until October 30, 2013.

Sources: SEC Approves JOBS Act Requirement to Lift General Solicitation Ban, Commission Also Adopts Rule to Disqualify Bad Actors from Certain Offerings and Proposes Rules to Enable SEC to Monitor New Market and Bolster Investor Protections, SEC Press Release 2013-124 (July 10, 2013); Amendments to Regulation D, Form D and Rule 156, SEC Release No. IC-30595 (July 10, 2013).

SEC Charges Investment Adviser for Misleading Fund Board About Algorithmic Trading Ability

The SEC charged an investment adviser and its former owner for misleading a mutual fund’s board of directors about the firm’s ability to conduct algorithmic currency trading so the board would approve the adviser’s contract to manage the fund.

The case arises out of an initiative by the SEC Enforcement Division’s Asset Management Unit to focus on the “15(c) process” – a reference to Section 15(c) of the Investment Company Act that requires a fund’s board to annually evaluate the fund’s advisory agreements. Advisers must provide the board with truthful information necessary to make that evaluation.

“It is critical that investment advisers provide truthful information to the directors of the registered funds they advise,” said Julie M. Riewe, Co-Chief of SEC Enforcement Division’s Asset Management Unit. “Both boards and advisers have fiduciary duties that must be fulfilled to ensure that a fund’s investors are not harmed.”

The SEC’s Enforcement Division alleged that Chariot Advisors LLC and Elliott L. Shifman misled the fund’s board about the nature, extent, and quality of services that the firm could provide. In two presentations before the board, Shifman misrepresented that his firm would implement the fund’s investment strategy by using a portion of the fund’s assets to engage in algorithmic currency trading. Chariot fund’s initial investment objective was to achieve absolute positive returns in all market cycles by investing approximately 80% of the fund’s assets under management in short-term fixed income securities, and using the remaining 20% to engage in algorithmic currency trading.

According to the SEC’s order instituting administrative proceedings, Chariot Advisors did not have an algorithm capable of conducting such currency trading. This was particularly significant because in the absence of an operating history the directors focused instead on Chariot Advisors’ reliance on models when the board evaluated the advisory contract. Even though Shifman believed that the fund’s currency trading needed to achieve a 25 to 30% return to succeed, Shifman allegedly did not disclose to the board that Chariot Advisors had no algorithm or model capable of achieving such a return.

The SEC alleges that for at least the first two months after the fund was launched, Chariot Advisors did not use an algorithm model to perform the fund’s currency trading as represented to the board, but instead hired an individual trader who was allowed to use discretion on trade selection and execution. According to the order, the trader used a technical analysis, rules-based approach for trading that combined market indicators with her own intuition.

The SEC further alleges that the misconduct by Shifman and Chariot Advisors caused misrepresentations and omissions in the Chariot fund’s registration statement and prospectus filed with the SEC and viewed by investors.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and whether any remedial sanctions are appropriate.

Sources: SEC Charges North Carolina-Based Investment Adviser for Misleading Fund Board About Algorithmic Trading Ability, SEC Press Release 2013-162 (August 21, 2013); In the Matter of Chariot Advisors, LLC and Elliott L. Shifman, Investment Company Act Release No. 30655 (August 21, 2013).

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SEC Scores in Accounting Fraud Suit Against BankAtlantic Corp. and Former CEO

Katten Muchin

On October 10, a Florida federal judge granted the Securities and Exchange Commission’s motions for partial summary judgment against BankAtlantic (now BBX Capital Corp.) and its former CEO and chairman Alan Levan, finding that the defendants’ public disclosures about their commercial real estate portfolio and their accounting treatment of certain portfolio loans violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The accounting fraud claim stems from BankAtlantic’s October 2007 attempt to sell many of the troubled loans. The company improperly recorded the loans on its books as “held-for-investment” instead of held-for-sale,” and failed to write them down. Management’s concern about the credit quality of the company’s commercial real estate land acquisition and development portfolio had been memorialized in a March 2007 email sent by the CEO in response to a cascade of borrowers requesting extensions, in which he stated, “[i]t’s pretty obvious that the music has stopped…I believe we are in for a long sustained problem in this sector.” The court found that the CEO made false statements in July 2007 during a second quarter earnings call, in which he acknowledged concerns about a subset of the portfolio but stated that, “there are no asset classes that we are concerned about in the portfolio as an asset class” and “the portfolio has always performed extremely well, continues to perform extremely well.” The company’s Forms 10-Q for the first and second quarters of 2007 did not acknowledge the trend of extensions granted and loans downgraded to non-passing status. The court also struck defendant’s affirmative defense that it relied on the professional advice of accountants, agreeing with the SEC’s assertion that the company did not completely disclose the problem to its accountants.

Securities and Exchange Commission v. BankAtlantic Bancorp Inc. et al., No. 0:12-cv-60082 (S.D.Fla. October 10, 2013).

 

New SEC Rule Helps Entrepreneurs Raise Capital

GT Law

Start-ups, small businesses, venture capi- talists and hedge funds can for the first time in 80 years begin openly advertising to raise money in private offerings. The change by the Securities and Exchange Commission is part of the JOBS Act requirement to amend Rule 506 of Regulation D to permit general solicitation. While opening the gates for general solicitation, the SEC has simultaneously tightened rules to protect investors.

Prior to the new rules that be- came effective Sept. 23, companies seeking to sell securities to raise capital had to either register the offerings or qualify for exemptions from registration. The costs and complexities of public offerings often were beyond the reach of many small businesses. The new public solicitation rules make it possible for startups, small businesses, venture capitalists and hedge funds to search for investors via the internet, newspaper and other ads, social media and other general solicitation methodologies — previously forbidden territory. At the same time, they avoid the challenges and costs that come with the full registration process.

The new rules are complex, and ensuring compliance will invariably require advice from securities lawyers and investment bankers who can help companies raise capital safely. This includes ensuring they qualify for the traditional exemption or are in the “safe harbor” of the new rule. While this involves cost and time commitments, the new avenues for fund raising are still less complex and ex- pensive than traditional registered offerings. For example, offerings under the original Rule 506 exemption (now retained as a Rule 506(b) offering) allowed companies to raise an un- limited amount of capital from an unlimited number of accredited investors, but not from more than 35 nonaccredited investors. The new alternative, Rule 506(c), allows companies to generally solicit potential investors, gaining access to wider au- diences through solicitation and advertising methods previously unavailable – good news for startups and small companies.

Other changes require issuers to provide ad- ditional information about the 506(c) offerings and require companies using the new rule to take “reasonable steps” to ensure every inves- tor is qualified. The definition of a “reasonable step” is not clear under the new rule. It will take time to fully understand what the SEC views as a “reasonable step.” Practitioners will want issu- ers to document in their files that the companies did more than just take the investors’ word that the investors are accredited. It is generally understood that tax returns, certifications from tax accountants, review of bank account statements or other independent confirming information about potential investors will suffice to meet the “reasonable steps” standard.

Another change imposed by the new rules: a “bad actor” disqualification. This means issuers and other market participants will be disquali- fied from relying on Rule 506 when felons or other bad actors participate in Rule 506 offerings. As part of the adoption of these new rules, the SEC also voted to issue new companion rules containing stronger investor protections. Theseinclude requiring entrepreneurs who take advantage of the new general solicitation rules to (i) provide additional information about their capital raising offerings, (ii) provide more information about the in- vestors who are participating in the offerings, and (iii) require companies to file Form D with the SEC at least 15 calendar days before engaging in general solicitation and within 30 days of completing the offerings to update the informa- tion contained in the Form D and indicate that the offerings have ended.

Although it remains to be seen whether these rules will make it easier for entrepreneurs to raise money, the new rule changes will certainly allow companies to reach more potential inves- tors in a more cost-effective manner. If handled properly, entrepreneurs should have a powerful new vehicle at their disposal to support the de- velopment and growth of their companies.

This article was previously publsihed in Daily Business Review.

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Securities and Exchange Commission (SEC) Adopts Rule Amendments to Implement JOBS Act Provisions for the Elimination of Prohibitions Against General Solicitation in Private Offerings

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On July 10, 2013, the SEC adopted final amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act in order to implement Section 201(a) of the Jumpstart Our Business Startups Act (JOBS Act). Section 201(a)(1) of the JOBS Act directed the SEC to eliminate the prohibition against general solicitation in private security offerings made under Rule 506 provided that all purchasers of the securities are accredited investors. New Rule 506(c) permits issuers to use general solicitation and general advertising in private security offerings made under Rule 506 provided that: (1) the issuer takes reasonable steps to verify that investors are accredited investors; (2) each investor qualifies, or the issuer reasonably believes that each investor qualifies, as an accredited investor at the time of the sale of securities; and (3) all terms and conditions of Rules 501, 502(a) and 502(d) are satisfied.

The SEC noted that whether the steps taken by an issuer to verify accredited investor status are “reasonable” is an objective determination based on the particular facts and circumstances of each investor and transaction. Factors to be considered in this analysis are:

(1) the nature of the purchaser and type of accredited investor that the purchaser claims to be;

(2) the amount and type of information that the issuer has about the purchaser; and

(3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as the minimum investment amount.

In response to commenters’ requests, Rule 506(c) also provides a non-exclusive list of specific methods that investors may use to verify an investor’s accredited investor status. This list includes:

(1) with respect to verifying income, review copies of any IRS form that reports income (e.g., W-2, Form 1099 or a copy of a filed Form 1040), along with a written representation that the investor will likely continue to earn the necessary income in the current year;

(2) with respect to verifying net worth, review copies of bank statements, brokerage or other statements of securities holdings, or CDs for evidence of sufficient net worth, along with a credit report for evidence of total liabilities; or

(3) obtain a written confirmation from a broker-dealer, an investment adviser, a licensed attorney or a certified public accountant that such entity or person has taken reasonable steps to verify the investor’s accredited investor status.

Section 201(a)(1) of the JOBS Act also directed the SEC to revise Rule 144A(d)(1) to provide that securities resold pursuant to Rule 144A may be offered, including by means of general solicitation, to persons other than  qualified institutional buyers (QIBs) as long as the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe is a QIB. The SEC adopted amendments to Rule 144A as directed under the JOBS Act.

The rule amendments became effective on September 23, 2013.

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Former Head of Investor Relations Penalized by SEC for Selectively Disclosing Material Nonpublic Information, While Self-Disclosing Company Escapes Charges

Katten Muchin

The selective and early disclosure of material non-public information resulted in a Securities and Exchange Commission cease and desist order and civil penalties against the former head of investor relations at First Solar, Inc. (First Solar or the Company), an Arizona-based solar energy company. The SEC determined that Lawrence D. Polizzotto violated Section 13(a) of the Securities Exchange Act of 1934 and Regulation FD by informing certain analysts and investors ahead of the market that First Solar would likely not receive an important and much anticipated loan guarantee commitment of nearly $2 billion from the US Department of Energy (DOE). The day after those disclosures, the Company publicly disclosed this information in a press release, causing its stock price to dip six percent.

On September 13, 2011, First Solar’s then-CEO publicly expressed confidence at an investor conference that the Company would receive three loan guarantees of close to $4.5 billion, which the DOE previously committed to granting upon satisfaction of certain conditions. Polizzotto and several other First Solar executives learned a couple of days later that the Company would not receive the largest of the three guarantees. An in-house lawyer expressly advised a group of First Solar employees, including Polizzotto, that they could not answer questions from analysts and investors until the Company both received official notice from the DOE and issued a press release or posted an update on the guarantee to its website. According to the SEC, notwithstanding this instruction, Polizzotto and a subordinate, acting at Polizzotto’s direction, had one-on-one phone conversations with approximately 30 sell-side analysts and institutional investors prior to First Solar’s public disclosure. In the conversations, they conveyed the low probability that First Solar would receive one of the three guarantees. In some instances, Polizzotto went further and said that a conservative investor should assume that the guarantee would not be granted.

Polizzotto agreed to pay $50,000 to settle the charges without admitting or denying any of the SEC’s findings. He, however, was not subject to even a temporary industry bar. The SEC did not bring an enforcement action against First Solar due to the Company’s cooperation with the investigation, as well as its self-disclosure to the SEC promptly after discovering Polizzotto’s selective disclosure. In addition, the SEC emphasized the strong “environment of compliance” at the Company, including the “use of a disclosure committee that focused on compliance with Regulation FD” and the fact that the Company took remedial measures to address improper conduct, including conducting additional compliance training.

In the Matter of Lawrence D. Polizzotto, File No. 3-15458 (Sept. 6, 2013).

International Group Structures Are Subject to An Ongoing Review for Optimizing Their Tax Position

GT Law

The recent trends show that offshore jurisdictions are off the corporate agenda in view of the increased scrutiny and decreased levels of acceptance from both fiscal and corporate social responsibility perspectives. Client feedback confirms the following rationale for moving corporate tax planning solutions onshore:

  • Increased scrutiny on tax havens and statutory requirements regarding tax substance, potential issues concerning withholding tax and taxation of foreign profits; and
  • Avoiding overtly complicated tax systems with strict CFC (controlled foreign company) regulations, thin capitalization rules and prohibitive transfer tax applicability.

It is a well-known fact that the Netherlands is not a tax haven but a safe haven and a logical choice as an alternative with an extensive double taxation treaty network. In addition, the Netherlands has an extensive bilateral investment protection treaty network that is regarded to provide premium coverage in view of the broad definition of “investor” and “investment” and providing access to dispute resolution through arbitration against independent states and awards that are enforceable against states, often referred to as “the Dutch Gold Standard.” Dutch structures are increasingly a recurring feature in international corporate structures for the purpose of protecting key corporate and personal assets. In this GT Alert, we briefly set out the options for migrating a corporate structure to the Netherlands to benefit from the all of the features that the Netherlands has to offer.

How to Achieve a Corporate Migration

Migrating a corporate entity within the EU into the Netherlands is a straightforward process from a Dutch law perspective. The following options are available:

Registration of an EU member state entity with the Dutch Trade Registry

The tax residence of an existing holding company can often be changed by moving its place of effective management and control outside of its existing jurisdiction for tax purposes. This may trigger a tax charge on exit.

Cross border merger

EU parent companies can migrate to the Netherlands by effecting a statutory merger with a Dutch entity under the cross-border merger regulations. It is also possible for non-EU parent companies to merge with a Dutch company by initially entering into the EU through a conduit EU jurisdiction that permits cross-border mergers with non-EU entities.

Share swap

It is possible to incorporate a holding company in the Netherlands whereby the existing shareholders exchange their existing shares for shares in the newly created Dutch holding company.

Re-registration as Societas Europaea 

An EU parent company can re-register as a European Company (Societas Europaea) and transfer its statutory seat to the Netherlands followed by a re-registration in the Netherlands as a Dutch parent company.

Why migrate to the Netherlands?

Key drivers for migrating the top holding company of an international group structure to the Netherlands are:

  • Low corporate income tax rate of 25% on trading profits (20% up to EUR 200K first band);
  • The Netherlands has an extensive double taxation treaty network with well over 90 jurisdictions;
  • The Netherlands has entered into a vast number of bilateral investment protection treaties (BITS) that offer comprehensive protection against unfair treatment of investments by sovereign states through access to world class dispute arbitration;
  • International and well-recognized jurisdiction with one-tier corporate governance system similar to that of common law countries;
  • Straightforward, cost-efficient and fast incorporation process for Dutch entities;
  • Public company N.V. entities are widely recognized as listing vehicles;
  • The Netherlands is the premier port of entry to mainland Europe with excellent facilities in terms of corporate and financial services;
  • English language optional for proceedings before the Amsterdam courts; and
  • Limited and straightforward corporate reporting requirements.

Taxation

The Netherlands is a gateway to Europe and the rest of the world. For many years, the Netherlands has been a preferred location for foreign companies to establish a business. The location, the political stability and, especially, the beneficial tax regime have turned the Netherlands into one of the go-to countries in this respect. The following tax points are of particular relevance:

  • The general Dutch corporate income tax rate is 25% (20% up to EUR 200K first band). This rate is more than competitive in the region, as all countries surrounding the Netherlands have higher corporate income tax rates.
  • Traditionally, the Dutch participation exemption has been a major attractor of companies to the Netherlands. This facility allows the receipt of dividends and capital gains from subsidiaries free of tax in the Netherlands. The Dutch facility is still one of the most flexible and easy accessible compared to other jurisdictions, especially, with regard to the following conditions: no holding period is required, an interest of 5% is already sufficient to apply, interest in subsidiaries located in tax havens are allowed to benefit from the facility and certain other specific benefits are available.
  • No withholding tax on royalties and no withholding tax on interest.
  • Dividends are taxed at a statutory rate of 15%. However, this rate may be reduced by virtue of tax treaties to 0-10%. In principle, no dividend withholding tax applies to distributions made by a Dutch cooperative pursuant to the domestic rules.
  • No controlled foreign company/Subpart F rules
  • No thin capitalization rules.
  • There is no stamp duty or capital tax.
  • One of the most extensive international tax treaty networks (the Netherlands has concluded over 90 tax treaties, more than most other countries) and the membership of the EU (and corresponding access to EU treaties) ascertain minimal taxation on payments to any group company.
  • Another traditional benefit of the Netherlands is the open attitude of the Dutch tax authorities. The Netherlands offers the possibility to discuss and reach agreement on tax positions in advance with the Dutch tax authorities that can be formalized in agreements (or advance tax rulings) to offer optimum certainty in advance.
  • Currently, the Dutch government´s main focus is on innovation. In 2007, the government was one of the first countries to introduce a special tax regime aimed at innovation (Innovation box). Based on the Innovation box, income earned out of R&D activities can benefit from an 80% exemption, resulting in an effective tax rate of 5%;
  • The Netherlands has extensive experience in the use of hybrid structures (i.e. hybrid entities and hybrid loans). These structures can be used to further optimize the group tax rate.
  • The Netherlands has traditionally not only been very welcoming to foreign companies, but also to expatriates. In the Dutch Personal Income Tax Act, expatriates (with certain skills) can receive 30% of their income as a tax free allowance under the so-called “30%-ruling.” A benefit that also benefits the employer in negotiating (net) salaries.
  • Customs authorities in the Netherlands have a reputation for being cooperative, innovative and exceptionally efficient; all to facilitate the free flow of goods. Customs duties or import charges are charged at a later date, if the goods are stored in accordance with customs procedures in the Netherlands. This leads to considerable cash-flow advantages to foreign shippers.
  • The Netherlands’ position on Value Added Tax (VAT) is also advantageous. In contrast to other EU member states, the Netherlands has instituted a system that provides for the deferment of VAT at the time of import. Instead of paying VAT when the goods are imported into free circulations within the EU, the payment can be deferred to a periodic VAT return. The Dutch VAT system offers companies significant cash-flow and interest benefits.
  • Even though the Netherlands provides several unparalleled tax facilities, it is not blacklisted as a tax haven, but can be considered as a safe haven.
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