Friday, July 15, 2016

Lindsay Leavitt Featured in AZ Business Magazine


Jennings, Strouss & Salmon attorney, Lindsay Leavitt, is featured in AZ Business Magazine regarding ADA cases.

Read the full article here.

Thursday, July 14, 2016

How to Respond to an NLRB Investigation

By: Otto S. Shill, III

For employers in western states, labor disputes may seem like remote events that happen between unions and companies in industrial cities east of the Mississippi River.  After all, Arizona is an “at will employment” and “right to work” state, isn’t it?  But here in Arizona the local regional office of the National Labor Relations Board (NLRB) is aggressively enforcing the National Labor Relations Act (the Act), which prohibits any employer, whether unionized or not, from using discriminating hiring practices or otherwise interfering with employees’ rights to act collectively to improve the circumstances of their employment or to consider adopting a union organization.  The job of the NLRB is to protect the rights of employees guaranteed under the Act.  Employers can therefore expect that facts are often interpreted by both the agency and the courts in favor of employees.  This means that Employers need to inform themselves and their management employees about how to avoid problems and to respond to enforcement actions. 

When the NLRB regional office receives a complaint, it opens an investigation, giving the assigned investigator a limited period of time to collect information about the alleged violation.  The investigator uses this investigation period to gather evidence that it will use to assess its case and to determine whether or not to litigate a case.  Evidence and witness statements provided by an employer during this crucial time become part of the administrative record and will be used in subsequent litigation.  Although employers get a chance to present their case, the Regional Director often draws inferences negative to the employer, and investigators do not always prompt the employer to offer evidence that could be used to rebut these inferences.  The result often is that the NLRB Regional Director finds that he has evidence that will allow the agency to prevail in litigation and then offers a settlement that includes hiring the complainer and/or paying him or her back pay to the date of alleged discrimination.  All of this happens under time pressure imposed by the agency’s Regional Director so that employers have little time to think and react.  Employers often characterize the process as costly and unfair.

Employing legal counsel early in the enforcement process gives an employer important advantages.  Counsel can help to develop and present evidence in a way that can rebut the negative inferences drawn by the Regional Director based on an incomplete view of the facts and that may cause the agency to reconsider its litigation risks.  Even if a case cannot be resolved during the investigation, the administrative record developed during the investigation will become critical during the litigation that follows.  Both administrative law judges of the agency and the courts can legally ignore evidence that is not presented to the agency in a timely manner.  In some cases, the administrative investigation is often the most critical phase of a case.  Hiring counsel who can help prepare the right response early in the enforcement process could prevent litigation or substantially reduce the cost of a settlement, saving literally thousands or tens of thousands of dollars. 

At Jennings, Strouss & Salmon, our attorneys have significant experience in assisting employers avoid, and defend themselves against, enforcement actions by government agencies, including the NLRB.   We are anxious to help businesses to improve their profitability by avoiding the difficulties that come with government enforcement actions including NLRB investigations.
Otto S. Shill, III is a Member at Jennings, Strouss & Salmon and is a part of the Tax, Estate Planning and Probate group. He can be contacted at or 602.262.5956.

Wednesday, July 13, 2016

Jennings, Strouss & Salmon Expands Tax, Estate Planning and Probate Practice Group with the Addition of Otto S. Shill, III

(PHOENIX, Ariz.) - Jennings, Strouss & Salmon, P.L.C., a leading Phoenix-based law firm, is pleased to announce that Otto S. Shill, III has joined the firm as a Member in the  Tax, Estate Planning, and Probate practice in Phoenix, Arizona
For more than 30 years, Mr. Shill has helped businesses and business owners comply with government regulations, navigate government investigations, and build wealth through business transactions and long-term planning. He has significant experience in federal and state tax compliance and tax controversies; compensation, benefits, and employment regulation; and government contracting compliance and disputes. 
“Otto possesses significant legal experience in the area of tax that will be advantageous, not only to his existing clients, but to other firm clients as well,” states Richard C. Smith, chair of Jennings, Strouss & Salmon’s Tax department. “We welcome Otto and the knowledge he brings to help expand the depth and breadth of the firm’s legal services.”
Mr. Shill advises clients on how to avoid and resolve issues. He regularly represents clients before the Internal Revenue Service (IRS) and other federal and state government agencies, such as the Equal Employment Opportunity Commission (EEOC), U. S. Department of Labor (DOL), Arizona Attorney General’s office and numerous Arizona regulatory boards. Mr. Shill also drafts and lobbies for the passage of legislation to remedy client issues. The Arizona Board of Legal Specialization designates Mr. Shill as a Certified Tax Specialist.
“I am excited to be joining Jennings, Strouss & Salmon, one of Phoenix’s oldest and most respected law firms,” said Mr. Shill. “Both at work and through public service, I help businesses and their owners thrive in challenging regulatory environments. Combining my resources with those of such a fine law firm will magnify and expand our ability to contribute to their success.”
Mr. Shill is actively involved in numerous community and business organizations. He is a member of the American Bar Association's Section of Taxation, Section of Labor and Employment, and Section of Public Contract Law. Mr. Shill is also a member of the State Bar of Arizona's Labor and Employment and Tax Law Sections. In addition, he serves on the Board of Directors for East Valley Adult Resources Foundation, as President-Elect of the Mesa Rotary Club, and as a member of the Arizona Business Aviation Association. Mr. Shill previously served as Chairman of the Board of Directors of the Mesa Chamber of Commerce and United Food Bank.
Mr. Shill earned his Taxation from Boston University in 1987, a J.D. from Brigham Young University, J. Reuben Clark Law School in 1985, and a B.S. in Accounting from Brigham Young University in 1982.

About Jennings, Strouss & Salmon, P.L.C.
Jennings, Strouss & Salmon, P.L.C., has been providing legal counsel for over 70 years through its offices in Phoenix and Peoria, Arizona; and Washington, D.C. The firm's primary areas of practice include agribusiness; automobile dealership law, bankruptcy, reorganization and creditors’ rights; construction; corporate and securities; employee benefits and pensions; energy; family law and domestic relations; health care; intellectual property; labor and employment; legal ethics; litigation; professional liability defense; real estate; surety and fidelity; tax; and trust and estates. For additional information please visit and follow us on LinkedIn, Facebook, and Twitter.

The firm’s affiliate, B3 Strategies, assists clients with lobbying and public policy strategy at the local, state, and federal levels. For more information please visit

Contact:  Dawn O. Anderson || 602.495.2806

Tuesday, June 28, 2016

The "Sound Mind"

By: Garrett Olexa

Defining Mental Capacity and How it Impacts Your Ability to Conduct Business, Manage Your Estate, and Even Vote.

According to recent statistics, the U.S. population aged 65 and older is projected to nearly double over the next three decades. This year, baby boomers are between the ages of 52 and 70 and, as this large segment of the population ages, there has been an increase in the number of people suffering from dementia, Alzheimer’s, and other memory diseases. According to the Alzheimer’s Association, more than 5 million Americans are currently living with the disease, and 1 in 3 seniors dies with Alzheimer’s or another form of dementia. This raises questions regarding the ability of those challenged with cognitive deficiencies and disabilities to enter into contracts, sign releases, transfer deeds to land, create valid Wills and binding powers of attorney, or even to vote.

Depending on the person’s condition, he or she may be considered mentally competent for some purposes, but incompetent for others. The factors for what constitute sufficient mental capacity to ensure validity and enforceability varies depending on the circumstance and type of document being executed.  For instance, in Arizona, with respect to the issue of competency to execute and be bound by a contractual document, such as a liability release, the standard is whether, under all circumstances, a person’s mental abilities have been so affected as to render him or her incapable of understanding the nature and consequences of his or her acts. Was he or she unable to understand the character of the transaction in question?  The ability to validly transfer a deed employs a similar standard. The determination of competency of the person transferring the property depends upon whether he or she could understand and appreciate the nature of conveyance executed. 

When it comes to creating a valid Will or Trust, testamentary capacity is an essential element. Specifically, the person signing the Will or Trust must understand the nature of his or her act and the nature or character of his or her property. In Arizona, a person is incapacitated and cannot create a valid Will or Trust if he is “. . . impaired by reason of mental illness, mental deficiency, mental disorder, physical illness or disability, chronic use of drugs, chronic intoxication or other cause, except minority, to the extent that he lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his person.”

The Arizona courts have applied a slightly different test when it comes to the creation of a power of attorney. A power of attorney is a document that allows one person (the “principal”) to give the power for making decisions and performing certain actions to another person (the “attorney-in-fact”) on the principal’s behalf. A power of attorney may provide the attorney-in-fact the authority to enter into financial transactions, sell real estate, handle business transactions, and even make health care decisions. The test to determine the competency of an individual to execute power of attorney is whether the person is capable of understanding, in a reasonable manner, the nature and effect of his act.  In order to challenge the validity of a power of attorney, it must be shown that mental incompetency existed at the time the document was signed; therefore, the power of attorney is not necessarily invalid if someone becomes incompetent after signing the document. 

Mental capacity can also determine a person’s ability to vote. In Arizona, a person placed under limited guardianship will automatically have his or her right to vote revoked and will have to petition the court to request that it be reinstated by providing clear and convincing evidence regarding capacity. In other words, the petitioner will need to prove he or she has retained a sufficient understanding in order to retain the right to vote.

Of course, a person’s mental capacity can be compromised not only by advanced age, but unexpectedly as a result of trauma or disease. Thus, delaying to prepare critical estate planning documents for which validity turns, in part, on the signer’s mental competency can prove costly–financially and to an individual’s quality of life.


Garrett Olexa is a Member with the law firm of Jennings, Strouss & Salmon, PLC and works in its estate planning practice group. He can be contacted at or 623.878.2222.


Friday, June 24, 2016

Alan P. Christenson Featured in FSR Magazine

Jennings, Strouss & Salmon attorney, Alan P. Christenson, is featured in FSR Magazine's column, The Kitchen Sink (online).

Read the full article: Tips for Negotiating an Exclusive Use Provision

Thursday, June 23, 2016

John J. Egbert Featured in AZ Central's Ask the Experts


Jennings, Strouss & Salmon attorney, John J. Egbert, is featured in AZ Central's Ask the Experts column.

Read the full article: Job Hunt Wise During Long Suspension

Wednesday, June 1, 2016

Doubling Down on Employee Salaries: The U.S. Department of Labor More Than Doubles the Mandatory Minimum Salary Requirement for Most Exempt Employees

By: Chris Mason

Beginning December 1, 2016, the minimum salaries for most exempt jobs will more than double to $47,476 from the existing $23,660 required. On May 18, the U.S. Department of Labor ("DOL") dealt its long-anticipated regulatory amendments for "white collar" overtime exemptions under the Fair Labor Standards Act ("FLSA"), which included increases to the mandatory base salary requirement.

The challenge for employers and employees alike will be the determination whether certain jobs will continue as exempt positions, or whether they will be converted to non-exempt positions entitled to overtime pay.  Some jobs may end entirely.  While other options remain, and a variety of jobs will remain unaffected, early estimates anticipate that approximately 5 million workers will be directly affected, for good or for bad, by the recent changes.

The White Collar Exemptions

Despite common misperception, an employee is not exempt from overtime pay simply because he or she receives a salary.  Employees must meet very specific exemptions to qualify.  Most of those exempt from overtime pay under the FLSA fall within one of several exemptions referred to as the “white collar” exemptions.  To qualify for one of these exemptions, an employee must meet the specific job duty requirements for the professional, administrative, or executive categories and, in addition, they must be paid a minimum annual salary of $23,660.   This minimum annual salary for these exemptions will bump to $47,476, or $913 per week.

A similar exemption, which also will be affected by the upcoming changes, applies to highly-compensated employees.  The duty responsibilities are relaxed for highly-compensated employees to qualify for exempt status, so long as their annual salaries are set no lower than $100,000.  This amount will increase to $134,004 effective December 1.

One of the upcoming additional changes will slightly improve an employer’s ability to satisfy these minimum pay requirements.  Employers may apply non-discretionary bonuses and incentive pay (such as commissions) towards up to ten percent of the salary requirement.  These additional forms of compensation were previously inapplicable to the minimum salary requirement.  For highly-compensated employees, all non-discretionary compensation can be used to satisfy the $134,004 requirement above a minimum of $47,476 in salary.

The Continued Payout

The new increases have an even greater impact than may appear at first blush.  For instance, with the amendments, the DOL has shuffled the deck with a new system that provides for automatic increases in the base salary requirement every three years.  The increase will be based on wage data from the bureau of labor statistics, which is expected to warrant an increase in the minimum salary to over $50,000 by 2020.

Employers evaluating whether to increase the minimum salaries for exempt employees will likely also evaluate its overall salary scale.  Employees who have progressed to higher salaries may also expect an increase as their less-senior cohorts face mandatory increases effective December 1.  While this is not mandated by regulation, employers should be prepared for it.

This, and similar considerations, represents perhaps the greatest gamble with the new regulatory requirements.  The dramatic salary increase may prove too costly for many currently-exempt positions, which may either be too costly alone or may not fit in existing salary scales.  Employers will need to evaluate whether to increase salaries, or transition currently-exempt employees to non-exempt status.  Some positions may face consolidation, and others may be eliminated.  For those who lose their salary status, they may face a change in pay that is tantamount to a pay rate reduction, and may face stricter scrutiny by their employer when seeking overtime work.

Splitting the Odds

Either way, whether employers increase salary for lower-paid exempt employees or transition them to hourly positions with overtime entitlement, employers must make changes.  If they opt to increase employee salaries to continue a white-collar exemption, they must ensure that the affected exempt employees are paid the minimum $47,476 required, unless the employees qualify for exempt status under a variety of other exemptions.  This too should be evaluated.  For employers increasing salary, now also is a good time for them to evaluate exempt employee duties.  As previously mentioned, not all salaried employees are exempt from overtime.  They must meet certain duty requirements to qualify for white collar exemptions.  These duty requirements create a significant challenge for employers on a regular basis, and now is a good time to evaluate which employees qualify.

Conversely, employees who are transitioned to hourly positions should be prepared to properly track and account for their work hours.  Many have developed practices consistent with receiving a salary, and may work flexible schedules.  This may change as employers impose time clock or time sheet tracking systems on these employees. 

Finally, employers should not focus exclusively on these changes to federal law, as state law may impose stricter requirements.  While an employee may qualify as exempt under federal requirements, the employee may still be entitled to overtime pay under applicable state law.

Stepping Away from the Table

While the changes may seem daunting, all is not lost.  Other exemptions and alternative pay structures may provide employers and employees with some relief and should be evaluated.  Furthermore, the duty requirements that were previously in place for the white collar exemptions remain the same under the new rules, minimizing the disruption.  Regardless of their chosen alternative, employers must plan and prepare for the change, rather than face investigation, fines, and possible lawsuits for failed or incomplete implementation. 

Footer:  When the Fair Labor Standards Act was passed in 1938, the original minimum wage was a mere $.25 per hour, and overtime only applied after the first 44 hours in a workweek.

Chris Mason is a labor and employment law attorney at Jennings, Strouss & Salmon, P.L.C. He counsels employers and management on all aspects of labor and employment law, including traditional labor matters, such as collective bargaining and union organizing; restrictive covenants; employment discrimination; sexual harassment; whistleblowing; retaliation; wrongful termination; personal policies; reductions in force; trade secrets; restrictive covenants; duty of loyalty; drug and alcohol testing; and other state and federal laws, rules, and regulations. He is also an experienced litigator, representing clients in Arizona, federal, and appellate courts, as well as before administrative agencies, including the National Labor Relations Board, the Department of Labor, the Equal Employment Opportunity Commission, the Arizona Civil Rights Division, and the Department of Economic Security.

Monday, May 23, 2016

Arizona Surety Claims: Surety Bad Faith Revisited in Recent Decisions

Co-Authored By: Jay M. Mann and Patrick F. Welch

Over the last twenty-six years, Arizona has been the epicenter of the national surety bad faith discussion.  In 1989, the Arizona Supreme Court issued probably the leading surety bad faith case in the county – Dodge v. Fid. And Dep. Co. of Md., 778 P.2d 1240, 161 Ariz. 344 (1989).   In Dodge, plaintiffs-homeowners contracted with a residential construction company to build a residence for them.  The contract required the contractor to obtain a performance bond, which the defendant-surety provided.  After the contractor defaulted under the contract, the plaintiffs sued the contractor and surety.  The plaintiffs sued the surety under the performance bond and bad faith.  The surety prevailed on the bad faith claim before the trial court and on appeal before the Court of Appeals.  The plaintiffs appealed. 

The Arizona Supreme Court reversed and held that a performance bond obligee may sue a surety for bad faith.  This was the first reported surety bad faith case ever decided.  Despite the fundamental differences between suretyship and insurance, the Dodge court held that sureties are insurers for purposes of Arizona’s insurance statutes.  Based upon this reasoning, the Dodge court applied the “special relationship” analysis, typically reserved for insurance contracts, to the surety context.  Concluding that sureties are insurers under the insurance statutes, the Dodge court further held that sureties have the same duty to act in good faith as insurers, and observed that the tort of bad faith arises when the surety intentionally denies, fails to process or pay a claim without a reasonable basis for such action.  

In the 37 years since the Dodge decision, a majority of courts around the country have rejected claims against sureties for surety bad faith, recognizing that there are fundamental differences between suretyship and insurance.  See, e.g. Cates Constr. v. Talbot Partners, 21 Cal.4th 28, 980 P.2d 407 (1999); Great Am. Ins. Co. v. N. Austin Muni. Util. Dist. No. 1, 908 S.W. 2d 415, 420 (Tex. 1995); Cincinnati Ins. Co. v. Centech Bldg. Corp., 286 F. Supp. 2d 669, 691 (M.D.N.C. 2003; Boldt Co. v. Thomason Elec. & Am. Contractors Indem. Co., 820 F. Supp. 2d 703, 705-06 (D.S.C. 2007); Inst. of Mission Helpers of Baltimore City v. Reliance Ins. Co., 812 F. Supp. 72, 74 (D. Md. 1992); Bell BCI Co. v. HRGM Corp., 276 F. Supp. 2d 462, 463 (D. Md. 2003); Toltest v. Purcell P&C, LLC, 2013 WL 1571714 at *5-6 (N.D. Ohio April 12, 2013); see also Resolution Trust Corp. v. Fid. & Deposit Co. of Maryland, 885 F. Supp. 228, 230-31 (D. Kan. 1995); In re Commercial Money Ctr., Inc., Equip. Lease Litig., 603 F. Supp. 2d 1095, 1124 (N.D. Ohio 2009)

In March 2014, we wrote an article presented to the Arizona State Bar, Construction Law Section.  The article explored two important unanswered questions from Dodge, including: (1) whether a surety defending a performance bond claim may assert a “bona fide or genuine dispute defense to a bad faith claim?; and (2) whether a payment bond claimant may bring a bad faith claim against a surety issuing a payment bond?[1]  Over the last several months, Arizona courts have issued two important decisions addressing these questions.  The courts’ reasoning in both decisions signals a shift away from Dodge and an effort to curtail surety bad faith liability.  

In a recent case handled by our office, the Superior Court of Arizona issued an unreported opinion granting the surety’s summary judgment motion seeking dismissal of a municipality’s surety bad faith claim involving a “Little Miller Act” performance bond.  The Superior Court held that a surety may deny a performance bond claim and avoid liability for surety bad faith where there is a “bona fide or genuine” dispute between the bond principal and the bond obligee as to the bond principal’s liability.  The Superior Court noted that “[a]s in the insurance context, however, a surety does not breach to covenant of good faith and fair dealing if the owner’s [obligee] claim is fairly debatable.”  The Superior Court further observed that “a surety faced with a dispute between owner and contractor, and the owner’s demand that it perform under the bond, a performance bond surety is not required to perform an investigation sufficient to determine who is right.  It need only investigate sufficiently to decide if a bona fide dispute exists.  If it does this, and there is a bona fide dispute, then it has not committed the intentional tort of surety bad faith.”  
In another recent case not handled by our office, the Arizona Court of Appeals held that a surety on a payment bond issued under Arizona’s “Little Miller Act” may not be sued for surety bad faith.  S&S Paving and Constr., Inc. v. Berkley Regional Ins. Co., No. 1 CA-CV 15-0239 at p.2.  In reaching its decision, the Court of Appeals noted the breadth of liability under the Little Miller Act and “refused to graft a common law remedy onto a statutory scheme that includes within its ambit both the availability of complete relief and specific conditions precedent to recovery.”  Rather, the Court of Appeals recognized that “a common law bad faith remedy would be inconsistent with the legislature’s defined liability for Act sureties” and emphasized Arizona precedent holding that “‘[w]hen a corporate surety undertakes an obligation on a bond pursuant to a specific statutory requirement, its liabilities are measured by the terms of the statute.’” 

The Court of Appeals also rejected S&S’s reliance upon Dodge, noting two important distinctions, including (1) Dodge did not involve a statutory bond, “let alone a carefully crafted statutory scheme that seeks to balance the competing interests inherent in public works project;” (2) “unlike Dodge, where the court found that the surety lacked an incentive to address the homeowner’s claim, a surety under the Act has a strong pecuniary motive to pay valid claims without litigation” because sureties are required to pay attorneys’ fees and interest to prevailing claimants. 

Undoubtedly, S&S will appeal the Court of Appeal's decision to the Arizona Supreme Court. In the authors' opinion, the S&S case is an important decision which will have far reaching implications for Little Miller Act performance bonds, contractor license bonds, motor vehicle dealer bonds, and all other statutory bonds. Like the recent unpublished Superior Court opinion discussed above, the S&S opinion is more good news for sureties and an example of a growing trend rejecting or limiting surety bad faith liability in Arizona.    

[1] Jay M. Mann and Patrick F. Welch, Surety Bad Faith Issues Still Unresolved Twenty-Six Years After Dodge v. Fidelity and Deposit Company of Maryland

Jay M. Mann is Chair of the firm's Construction and Surety Department. He focuses his practice in the areas of construction, surety and business law. Mr. Mann represents clients in other commercial litigation cases and serves as an ADR neutral in arbitrations and meditations.
is Chair of the firm’s Construction and Surety Department. He focuses   his practice in the areas of construction, surety and business law. Mr. Mann represents clients in other commercial litigation cases and serves as an ADR neutral in arbitrations and mediations. - See more at:

Patrick F. Welch focuses his practice in the areas of general and complex commercial litigation, construction litigation, and fidelity and surety litigation. Mr. Welch is licensed in the States of Arizona and Nevada, and the Commonwealth of Massachusetts. Based in Arizona, Mr. Welch regularly assists surety and fidelity clients with all facets of Arizona and Nevada claim investigations, litigation, trial, arbitration, mediation and appeals.


Monday, May 16, 2016

New Federal Crowdfunding Rules

By: Chris Rogers

The new federal crowdfunding rules went into effect May 16, 2016.  Now startups and other growth-oriented companies can raise up to $1 million dollars per year from the general public, provided the company (the Issuer) follows the new rules adopted by the Securities and Exchange Commission (SEC).   In contrast to the donative-models of crowdfunding commonly associated with Kickstarter, Indiegogo, and GoFundMe (where participants may receive, for example, a T-Shirt or early release of a product in exchange for a donation), equity crowdfunding investors are like micro-venture capitalists who could enjoy a return on their investment if the business is successful.  

Known as “Regulation Crowdfunding”, the new federal rule provides another exemption from the default requirement that any offer or sale of a security must be registered under the Securities Act of 1933.  Because the process of registering a securities offering (commonly referred to as “going public”) is complicated and expensive, Issuers most often rely on the “all accredited investor” private placement exemption found in Regulation D.  That exemption, Rule 506, exempts offers and sales to accredited investors (e.g., individuals with net worth in excess of $1 million, and others).  

However, with Regulation Crowdfunding expanding permissible potential investors to virtually everyone in the United States, proponents hope that entrepreneurs can spend less time seeking out high net worth potential investors capable of writing large checks, and rely instead on the power of a compelling business idea or plan, modern technology, and small aggregate investments.  A successful crowdfunding campaign could allow entrepreneurs to invest more of their time on their core business, thus potentially increasing their likelihood of success. 

To comply with Regulation Crowdfunding, an Issuer must meet stringent requirements, including filing an offering statement on Form C (available here).  A completed Form C will include, among other items, the following:

  •  description of the Issuer’s company and business plan;

  •  identification of officers, directors, and principal existing stockholders or members,

  • provision of financial statements in US GAAP (in some cases must be reviewed by a public accountant),

  • disclosure of significant risks to the company and/or its business. 

In addition to the cap of raising $1 million in any 12-month period by any Issuer, Regulation Crowdfunding allows limits the amount any investor can invest across all crowdfunding Issuers in any 12-months. 

For example, an investor with income or net worth below $100,000 may invest only the greater of:
(i)                 $2,000, or
(ii)               5% of the lesser of his annual income or net worth. 

An investor with net worth and income greater than $100,000 may invest 10% of the lesser of her:
(i)                 annual income, or
(ii)               net worth. 

No individual may invest more than $100,000.  In addition to these requirements, an Issuer relying on Regulation Crowdfunding must use a registered broker-dealer or funding platform to facilitate the securities offering, and take reasonable steps to verify compliance with the limitations on the investment amounts.  As for ongoing reporting requirements, the Issuer must also file a crowdfunding-specific annual report (Form C-AR) each year that provides updated information including financial statements.

Any securities offering, including a crowdfunding, is a serious endeavor requiring planning and careful observance of the legal requirements (which are only summarized in part here).  Anyone considering using Regulation Crowdfunding should be mindful of anti-fraud Rule 10-b5.  That rule prohibits making untrue statements or withholding or omitting material information.  An investor is entitled to know all information about a potential investment that could reasonably be deemed important to a potential investor in making its investment decision.  A violation of anti-fraud rules impose joint and several liability for all members of the selling group (e.g., officers and directors). 

For that reason, it is important for any Issuer to thoughtfully analyze its business and the risks it faces and be prepared to provide detailed, written, disclosure that will mitigate issues in the future.  Successful Issuers often use that disclosure as a sales opportunity.  Properly crafted disclosures can encourage trust and confidence by demonstrating the Issuer’s command of the core of its business.  Furthermore, Regulation Crowdfunding is only one possible offering structure among several that could be available to an Issuer.  It is important to find the structure that best suits an Issuer’s needs.

The securities attorneys at Jennings Strouss work with Issuers every day in planning and structuring securities offerings tailored to individual needs.  For more information on Regulation Crowdfunding, Form C, state crowdfunding rules, Regulation D, or disclosures, or securities offerings generally, you can reach Chris Rogers at (602) 262-5962).

Chris Rogers focuses his practice primarily in the areas of general corporate law and private securities offerings. He regularly advises companies in connection with private placements of equity and debt instruments, and in preparation for initial public offerings, domestically and in Canada. Rogers has substantial experience representing individuals and investment funds in the purchase and sale of privately-held business interests.