The Catholic University of America


An all CUA Law alumni panel discusses the future of raising capital for private companies at a discussion in Dewey & Leboeuf's New York City office on Oct. 18. The event was part of the law school's Critical Insights in the Law and Law Practice series, now in its third year. Left-to-right: Theodore R. Lazo, 1994; Eric W. Blanchard, 1999; Andrew J. Brady, 1996; and Annemarie Tierney 1990. 

Experts Assess Significant Changes Ahead for the Raising of Capital

For nearly 80 years, companies seeking to raise money and attract investors have gone public selling stock, and by doing so, triggering heightened scrutiny from government regulators such as the SEC to make sure everything is on the up and up.

With relatively little fanfare, the time-tested model has been begun to evolve in recent years, with potentially significant changes in store. How money is raised by some privately held companies today, and how these actions might invite the careful monitoring of government watchdogs was the subject of a symposium, “Creating Liquidity for Shareholders of Private Companies: The New Definition of Publicly Traded Securities,” held on Oct. 18, 2011 in the New York City offices of the law firm Dewey & LeBoeuf, which supported and hosted the program.
Conceived and moderated by Professor David Lipton (left), director of the Securities Law Program at The Catholic University of America Columbus School of Law, the four program panelists interpreted the recent changes before a mostly financial industry audience.
“We’re at a point in the securities industry that’s amazing and unusual,” said AnnMarie Tierney, general counsel and corporate secretary with SecondMarket, an online marketplace for illiquid assets like private company stock. Companies including Facebook, Tesla, and Twitter have been traded through it.
The panel experts enumerated some of the key changes in the securities landscape since the Securities Acts of the 1930s were first legislated, including: the vast institutionalization of the securities markets and the dramatic reconfiguration of the trading systems; the advanced speed of dissemination of market and financial information; and the SEC’s own implementation of new exemptions from registration.
All of those factors, in particular the development of new kinds of securities trading platforms, make going public less of an imperative than it used to be. The average timespan is now 9-10 years, but many companies need fresh infusions of capital long before that point.
“We think going public is a very important step in a company’s development. We just don’t think a company should have to go public if it’s not ready to do so just because it has 500 shareholders,” said Tierney.
The videotaped discussion invited other points of view, such as whether the more lax approach today to trading the stock of privately held companies is pushing the envelope a bit too far.
“The SEC takes the view that a public resale of restricted securities and reliance on the 401 exemption raises serious questions about whether the seller is merely a link in a chain of transactions whereby the securities end up in the public realm,” noted Andrew Brady, a counsel in the corporate group of Skadden’s Washington, D.C., office and former special counsel with the SEC.
There are a number of bills before Congress that would make it simpler for private companies sell shares without going public or requiring a burdensome registration process.  
It was generally agreed that the availability of liquidity in the secondary market for restricted securities could stimulate investment in initial offerings of private companies, allowing them to raise capital almost as efficiently as public companies do today through the registration process. And that could be a good thing.
“Companies like SecondMarket are all forging a path for liquidity for these private company securities. It’ll be interesting to see how it continues to evolve,” remarked Eric Blanchard (left), a corporate finance lawyer and partner in the New York office of Dewey & LeBouef.
The bottom line: Do today’s realities diminish the importance of the venerable Securities Acts, and can companies efficiently and legally raise new capital without going public? These questions were thoroughly explored but hardly settled by the discussion. The answers may take years to become clear. 
One fact not mentioned until the end of the program was a great source of pride for the entire panel. Professor Lipton explained that when he began to select the program’s speakers he simply set out to find the four best-qualified experts he could to serve as discussants.

“It was stunning. I looked around and I kept on asking people, ‘who’s the best? Who’s the best?” said Lipton. “This is the panel we ended up with. Everyone here is a Catholic University law school grad and I’m real proud of that.”