Posted in Articles

Secondary debt trading update: eligible transferees – what is a “financial institution”?

A functioning secondary debt market is an important element of the European restructuring landscape, giving sellers an option to get out of challenging capital and resource-sapping situations. Buyers of second debt are often able to buy in at a level which gives them the flexibility to sustain an impairment of the principal amount due and/or provide fresh liquidity into a distressed situation. For debtors, the introduction of a new lender can often be a fresh start in a situation which might have turned into a challenging dynamic with their former lender.

A fundamental component of the market’s operation is the basic ability of a seller to transfer loans to an eligible buyer. In the recent case of Grant & Others v WDW 3 Investments Limited and Arazim (Gibraltar) Limited, the High Court of England and Wales considered the meaning of the term “financial institution” in the context of a secondary market debt trade. The Court interpreted the term broadly, finding that a non-trading special purpose vehicle with minimal capitalization was a “financial institution” for the purposes of a transfer restriction in the underlying loan document.

To learn more about the Court’s decision and how it may affect market considerations, please read the full article by our colleagues David Ampaw and Rowan Aspinwall.

Posted in Reports

Global Media Sector Trends 2018: Seizing new commercial opportunities and tackling emerging threats

In DLA Piper’s new Global Media Sector Trends 2018 report  our colleagues Neil Fitzpatrick, Peter C. WhiteProf Dr Stefan EngelsQiang LiGiangiacomo OliviDavid R. Pahl, and Jamie Ryder explore how new commercial opportunities are being created by disruption, specifically in relation to the rise of over-the-top (OTT) content, virtual / augmented reality (VR/AR) and the internet-of-things (IOT).

Click here to watch insights from colleagues around the world talking about the media trends in their region, including the US, Germany, Italy, the Middle East, and China.




Posted in Articles

Inspirational Women in Real Estate

At DLA Piper, diversity, inclusion and equality are a part of how we live our values and we are working hard to become a firm that is representative of the wider societies where we do business.

In the real estate industry, there is a noticeable lack of women at the senior levels of organizations, our own included. We are seeking to redress this, and fostering inclusivity, diversity and balance allows us to build the most effective teams for our clients and to deliver the highest level of service.

In the first volume of Inspirational Women in Real Estate we are showcasing some of the women who are stepping forward at DLA Piper to be visible role models for gender balance. We hope you enjoy reading their stories of working in law and in the real estate sector.

Posted in Articles

Tax advantages of Uruguayan holding companies

DLA Piper’s LATAM Law Blog recently featured the following guest post by Guzman Ramírez  from Bergstein Abogados, an independent law firm in Uruguay:

Uruguay offers a number of tax advantages to multinationals. This has become especially so in the wake of the substantial tax reforms which have taken place in Uruguay in the last few years, under which Uruguay has been excluded from OECD blacklists.

In Uruguay, corporations can be used to engage in offshore holding activities. This is what is known as sociedades de inversion or “holding companies”, ie, companies expressly contemplated under Uruguay’s Companies Act whose main purpose is to participate in the capital of other companies.

Such holding companies are able to set up legal structures in Uruguay with taxation that is very low − indeed, practically zero. This is so because, for tax purposes, Uruguay maintains the so-called principle of the source (principio de la fuente): companies only pay corporate income tax (Impuesto a las Rentas de las Actividades Económicas − IRAE) on locally sourced income; foreign-sourced income is excluded from corporate income tax. Furthermore, the net worth tax (Impuesto al Patrimonio − IPAT), which taxes assets at a rate of 1.5 percent, and VAT (22 percent) are only levied on assets and investments located inside Uruguayan territory.

Therefore, insofar as a holding company does not conduct any activities in Uruguay, no local taxation applies, except for a fixed annual payment of approximately US$600, called the Corporations Control Tax (Impuesto de Control de las Sociedades Anónimas − ICOSA).

—As a result, income obtained from the sale of participation in foreign companies or businesses, dividends obtained from foreign entities in whose capital the Uruguayan holding company participates, assets allocated in the liquidation proceedings of a foreign company and interest collected from individuals or companies abroad are all deemed to be foreign income, excluded from taxation in Uruguay.

In addition, where there is no locally sourced income, then remittance of dividends remains tax free. In Uruguay, remittance of dividends is only taxed where the following conditions are cumulatively met: the company based in Uruguay is subject to corporate income tax in Uruguay; and dividends effectively derive from income subject to corporate income tax. In consequence, shareholders of holding companies based in Uruguay are not subject to personal income tax (Impuesto a la Renta de las Personas Físicas − IRPF).

Guzmán Ramírez
Tax Department
Bergstein Abogados
Montevideo, Uruguay

Posted in Alert

SEC advises companies to publicly disclose cybersecurity risks and prohibit insider trading around cybersecurity incidents: action steps for public companies

On February 21, 2018, the SEC issued new guidance on whether public companies need to provide public disclosure of a “material” cybersecurity risk or event.  Although the guidance is nonbinding, it is instructive in understanding how the Commission may interpret alleged cybersecurity lapses, particularly with regard to enforcement actions in exercising its civil jurisdiction over public companies.

Read the entire Cybersecurity Law Alert written by our colleagues Jim Halpert and Rachel K. Paulose.

Posted in Press

Launch of Executive Learning Series – Featuring Ambassador Dan Shapiro

On February 19, 2018, DLA Piper’s Israel Country Group launched its Executive Learning Series, where we were honored to hear from former US Ambassador to Israel, Dan Shapiro.  Ambassador Shapiro highlighted the many successful accomplishments achieved between the US and Israel during his six-year (2011-2017) tenure as ambassador, including a $38 billion Memorandum of Understanding, increased mutual trade, and innovative joint technological developments to bolster national security and economic growth.  Speaking to a full house of attendees from across the Israeli business landscape, Ambassador Shapiro touched on several additional themes, including the future outlook for US-Israel relations under the Trump administration; life in Israel as a private resident and why he and his family chose to stay; and even the regained freedoms, post-ambassadorship, of utilizing his personal Twitter account.

The event was co-hosted by Nefesh b’Nefesh (“NBN”), an organization that, in cooperation with the Israeli government and The Jewish Agency for Israel, is dedicated to minimizing the financial, professional, logistical and social obstacles for individuals and families seeking to move to Israel.  Held at NBN’s Tel Aviv “Aliyah Hub,” which provides free co-working space for new immigrant entrepreneurs, the event also highlighted the many achievements of immigrants and their contributions to the Israeli startup ecosystem.

Posted in Articles

Tips for raising venture capital: commercial contract issues









Read the tips below from our colleague Jeff Lehrer:

You started with a great idea and have built the technology to bring your idea to life. You have also addressed the critical intellectual property rights issues that will allow you to protect your idea in the commercial market. Here are some common commercial contract issues to watch out for as your company begins contracting with third parties and looks forward to the next venture round or potential acquisition.

When entering into a licensing agreement, consider the impact that the agreement may have on your company’s ability to pursue subsequent contracting opportunities. For example, avoid granting exclusivity rights to customers, such as for a fixed period of time or in certain geographies. Similarly, avoid giving non-competes for broad fields or entering into a long-term agreement with no ability to adjust pricing during the term of the contract.

Be careful that your commercial agreements clearly and properly allocate ownership of IP, such as when entering into development agreements with developers and contractors. If you expect that your company will own the development, ensure that your contract clearly spells that out. For more information about ownership of IP in consulting agreements, please see our article on consulting agreements.

Make sure that you are in compliance with open source licenses, and be wary of including so-called viral open source code in core products. Non-compliance with open source licenses could adversely affect the value of the company’s software. For more on how this could happen when open source software is not carefully used, please see our article.

Further, avoid entering into commercial agreements where you may be on the hook for uncapped liability. Among the potential pitfalls in such agreements are overly broad indemnities and performance warranties, which may result in the company assuming a level of liability that scares away investors.

Posted in Articles

The SEC has the Munchees: Eating away at the “utility token” theory

In this week’s guest blog post, our Seattle-based colleagues, Andrew Ledbetter and  Trent Dykes, discuss takeaways from the SEC’s enforcement order regarding Munchee’s token offering and SEC Chairman Jay Clayton’s general public statement on cryptocurrencies and ICOs:

For those who previously read our post about the SEC’s report in the DAO, much of this might not be a surprise – although the SEC staff did answer the call of discussing so-called “utility tokens.”

The SEC action against Munchee is notable to us because Munchee had at least some argument that its tokens had utility. As quick background, the Munchee app is built around a crowd-sourced restaurant review concept.  The Munchee app was built before the token offering.  The Munchee tokens (MUN) were designed to function as an internal currency for “use in the Munchee app for rewards and interactions.”  Munchee had a somewhat polished white paper, replete with disclaimers and carefully avoiding terms such as “ICO” and “investors,” and a management and advisory team with relevant technical and industry experience.  For those of us working in this space, this fact pattern is familiar – and did not feel like the edge cases that had previously caught the ire of the SEC, such as a massive loss of investor capital or a recidivist promising 1,354% profit in less than 29 days.

So what takeaways can other potential token issuers glean from the Munchee order? How much “utility” is needed?

Almost every token issuer desires its tokens to be “utility tokens,” not “security tokens.”  For those new to this space, don’t be confused by the industry parlance, which was created just a few months ago and has taken off like wildfire.  Fundamentally, the concept is that a token with “utility” should carry an expectation of use, not an expectation of profits, under the Howey test for investment contracts.  (Our prior blog discusses the elements of this test.)

Here are some guideposts to consider when evaluating your token’s claims of utility:

  1. What if my app is built?  The Munchee order acknowledges that Munchee had “created an iPhone application (‘app’)  for people to review restaurant meals.”  Many issuers want to argue they are selling a “minimally viable product” that has immediate utility in the hands of the holder.  The SEC clearly regarded the app alone as inadequate and decided to highlight this fact at the very beginning of the order summary.  The SEC order emphasized that the app was subject to improvement, that the ecosystem and its participants (advertisers, reviewers, restaurants) did not exist, and that MUN could not buy any good or service. At a minimum, the SEC is signaling that an adequately advanced version of the app is needed with meaningful use for the token at the time of the offering.
  2. What if I give my tokens “more” utility at issuance?  Read paragraph 35 of the Munchee order. The SEC was obviously not enamored with Munchee’s “utility token” argument.  Paragraph 35 was logically unnecessary to the SEC’s conclusion (dicta).  The SEC stated:  “Even if MUN tokens had a practical use at the time of the offering, it would not preclude the token from being a security.”  Even more notable, the SEC broadly characterized the US Supreme Court case of Forman for the proposition that “purchases of ‘stock’ solely for purpose of obtaining housing” is not the purchase of an “investment contract” (emphasis added).  This suggests that if there is an expectation of profits, even if that is secondary to the more predominant expectation of use, a token may be a security.  While we may debate this, or hope that the SEC did not really mean this in a paragraph that is technically unnecessary to the order, it is difficult to ignore – especially given that it said basically the same thing in the DAO report.
  3. What if my “Howey test score” shows my token has low risk of being a security?  One of the more amusing things we have seen around the ICO craze has been the creation of a very thoughtful spreadsheet attempting to reduce the analysis of whether a token is a security to a series of yes/no questions where answers are ascribed values that are summed into likelihood of being a security.  Many companies populate this spreadsheet as part of their internet research about ICOs, before calling counsel.  While as securities lawyers we appreciate that this device has focused attention on a key issue, there is an obvious garbage-in-garbage-out problem.  The SEC chose to mention that Munchee had conducted this exercise and stated that the sale of its tokens “does not pose a significant risk of implicating the federal securities laws” – which obviously is inconsistent with the SEC order.  This seems like apt caution for the hundreds of token issuers who have reached the same self-serving conclusion.
  4. Can I sell my tokens to crypto-investors?  As the Munchee order illustrates, the SEC may regard selling to crypto-investors as indicia of selling securities. If you are selling a prepaid use right, then why not sell this right to the end user? The SEC noted that Munchee did not market or sell to current users of the Munchee app, in restaurant industry media or to restaurant owners. Selling large amounts of products or services to identifiable investors is not how people typically sell software seat licenses, concert tickets, prepaid products, or other non-security assets.
  5. Should I build in deal features that cause price appreciation?  The SEC profiled several features of Munchee’s token model that may cause token value appreciation – from creating a tiered membership plan that increases reviewer payouts based on the amount of tokens they hold (which constrains supply), to “burning” tokens in certain situations (which reduces supply), to promising to support trading on secondary markets (which allows capturing appreciation and may reduce any illiquidity discount), to supporting liquidity by buying and selling token from its own holdings (which promotes liquidity).  These types of features make a token feel like an investment vehicle, not a use right.
  6. Lots of non-security assets increase in value – from homes to baseball cards.  Can I discuss this in my token sales materials?  This is the sort of language that causes purchasers to expect profits.  The SEC cites to lots of examples of this from Munchee in ordering them to cease sales of tokens – from simply stating MUN would rise in value, to its description of deal features designed to achieve this outcome, to endorsing statements of third parties recounting significant gains, to comparisons of MUN to prior ICOs and digital assets that created profits.  People don’t sell non-investment assets with extensive allusions to increased asset value.
  7. Should I keep it out of my white paper and just discuss token appreciation on Telegram?  There is no real difference.  The SEC almost showed off how much social media and non-offering document review it conducted.  The Munchee order cites a wide variety of disclosure outlets – from websites, to promotional videos, to articles, to blog posts, to podcasts, to Tweets, to Facebook posts. In addition to the direct marketing efforts of the Munchee team, the SEC highlighted Munchee’s endorsement of other people’s public touting of the opportunity to profit and the more than 300 people promoting the MUN offering through social media (including translating MUN offering documents into multiple languages for countries in which the app was unavailable).

There are many other interesting aspects of the Munchee order and the public statement concurrently released by SEC Chairman Jay Clayton, such as:

  • The SEC plainly characterized the exchange of Bitcoin or Ether for MUN as an investment of money.
  • The SEC did not meaningfully discuss the “common enterprise” element of the Howey test (an element that many practitioners have emphasized in great detail).
  • SEC Chairman Jay Clayton provided the following entertaining example of what may and may not be a utility:

For example, a token that represents a participation interest in a book-of-the-month club may not implicate our securities laws, and may well be an efficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of those books to token holders. In contrast, many token offerings appear to have gone beyond this construct and are more analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networks all to come. It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.

If you are considering a token offering, talk to your securities counsel about whether your tokens are securities and how to sell them compliantly. If you have already sold tokens hoping they were utilities, or have received an inquiry from the SEC, talk to your securities counsel.  Note that Munchee entered into a settled order that did not name any of its officers or directors and avoided a civil penalty – in part, because Munchee immediately shut down token sales, returned investor funds and cooperated with the SEC staff.

Posted in Articles

Smartphone apps pose heightened compliance risks under new US FCPA Corporate Enforcement Policy

With the widespread adoption of “super-apps”, multinational companies operating in China and other emerging economies may be exposed to heightened compliance risks, particularly in light of the recent adoption of a new US Foreign Corrupt Practices Act Corporate Enforcement Policy (FCPA Enforcement Policy) that restricts the use of third-party apps for undocumented business communications.

For more information, read the White Collar Alert written by our colleagues, Nathan BushSammy Fang, and Jason Chang.