On May 30, 2017, Mayor de Blasio signed into law Int. No. 1456, requiring mobile food vendors (food trucks, hotdog carts, etc.) to display letter grades received after sanitary inspections akin to those displayed in windows of city restaurants. The new law will be a win-win for both consumers and vendors as seeing satisfactory grades will assure customers of a sanitary product, further legitimizing the ever-expanding food truck industry in NYC. A similar bill is active in the NY State Senate. The state law would require the inspection grades to be displayed and require tracking of the mobile food vendors in order to efficiently find their protean locations for inspection purposes. Currently, the NY State bill has passed the State Senate and has been delivered to the State Assembly. At the very least, expect to see health inspection grades displayed on mobile food vendors in the near future.
After a Saturday night of taking in the Big Apple, you meet your friends for 10:00 a.m. brunch on the Upper West Side. You decide that you’d like to chase your blueberry pancakes with a refreshing mimosa, but the server stops you: “I’m sorry, but we don’t serve alcohol until noon.” This was the response for decades until now.
The Alcoholic Beverage Control Law, a law which dates back to the prohibition era, disallowed the sale of alcohol on Sundays until noon throughout the State of New York.¹ On Wednesday, September 7, 2016, Governor Andrew Cuomo signed legislation which sought to modernize the prohibition era law which originally established the rules and regulations regarding the sale of alcohol.² As of September 7, 2016, restaurants in New York may serve alcohol as early as 10:00 a.m. on Sundays. Additionally, twelve permits per year will be made available outside of New York City for restaurants to serve alcohol as early as 8:00 a.m.
The looser measures come as Governor Cuomo seeks to embrace New York’s burgeoning craft alcoholic beverage industry and stimulate business for bar and restaurant owners. The legislation as originally proposed permitted alcohol to be served at 8:00 a.m. on Sundays, but 8:00 a.m. was opposed by some legislators who feared that an earlier time would invite unwelcomed morning noise and ruckus. Thus, compromise was struck with drinks being poured starting at 10:00 a.m. Cheers!
¹ N.Y. Alco. Bev. Cont. Law.
² NY LEGIS 297 (2016), 2016 Sess. Law News of N.Y. Ch. 297 (S. 8140).
The recently enacted Fixing America’s Surface Transportation Act (the “Fast Act”) creates a new exemption from the registration requirements of the Securities Act of 1933, for resales of restricted securities, charges the Securities and Exchange Commission (the “SEC”) to study and simplify specified securities laws and amends certain regulations to facilitate capital-raising by emerging growth companies. Provisions of the FAST ACT modify or supplement the Jumpstart Our Business Startups Act of 2012, to further ease certain securities regulation requirements. Some of the new provisions are effective immediately, while others require further rulemaking or action by the SEC.
Below is a summary of the key securities laws provisions included in the Fast Act:
New Resale Exemption
The Fast Act adds a new Section 4(a)(7) to the Securities Act, effective upon enactment, for secondary sales of restricted securities, subject, among other requirements, to the following conditions:
- each purchaser is required to be an “accredited investor”, as defined in Rule 501(a) under the Securities Act;
- the seller, or any person acting on the seller’s behalf, may not engage in any form of general solicitation or general advertising; and
- unless the issuer is a reporting company under the Securities Exchange Act of 1934, the seller must make available to a prospective purchaser information concerning the issuer, its officers and directors, names of persons receiving commissions for the sale of securities in the offering, recent and prior financial statements, and information on any control persons who are sellers.
Section 4(a)(7) is similar to the exemption developed through SEC guidance and case law, and known as the “Section 4(a)(1 ½)” exemption. Securities acquired in accordance with the Section 4(a)(7) exemption will continue to be “restricted securities” under the Securities Act and “covered securities” for preemption purposes of State Blue Sky laws. The new Section 4(a)(7) exemption is not exclusive of other available exemptions (including resales under Rule 144).
Easing Smaller Company Registration
The Fast Act mandates the SEC to amend Form S-1 to allow smaller reporting companies to incorporate by reference in a registration statement filings after the effective date of the registration statement.
Simplification of Disclosure Requirements
The Fast Act requires the SEC to study and/or issue rules to:
– to modernize and simplify disclosure requirements;
– revise Regulation S-K to eliminate provisions that are “duplicative, overlapped, outdated, or unnecessary”; and
– permit issues to include a summary page in their annual reports filed on Form 10-K so long as each item in the summary include a cross-reference to material contained in the Form 10-K.
Some Lenience for Emerging Growth Companies
The Fast Act includes provisions related to emerging growth companies (generally companies with annual revenues of less than $1 billion (“EGCs”)), to:
- permit EGCs to file a registration statement with the SEC within 15 days (in lieu of 21 days) before the date on which the issuer commences a road show in connection with a public offering;
- allow an EGC that qualified as an EGC when it commenced the registration process, which subsequently ceases to be EGC, to continue to be treated as an EGC until the earlier of the date on which the issuer consummates its initial public offering or the end of the 1-year period beginning on the date the company ceases to be an EGC, regardless of whether it is no longer an EGC during the registration process; and
- allow EGCs to omit certain financial information in a registration statement for historical periods otherwise required by Regulation S-X so long as at the time of the filing, the issuer does not believe such information will be required at the time of the offering; provided, that, at the time of distribution, the preliminary prospectus includes all required financial information.
These provisions are either effective immediately or the SEC has advised that it will not object if EGCs apply these provisions immediately.
To discuss these provisions of the Fast Act, please contact either of the authors at:
The Fast Act is available at: https://www.govtrack.us/congress/bills/114/hr22/text.
The SEC’s announcement is available at : http://www.sec.gov/corpfin/announcement/cf-announcement—fast-act.htm and its Compliance and Disclosure Interpretation is available at: http://www.sec.gov/divisions/corpfin/guidance/fast-act-interps.htm.
The Securities and Exchange Commission adopted final rules permitting companies to offer and sell securities through internet crowdfunding to all types of investors, whether or not accredited, and regardless of the investor’s net worth, income or sophistication. Regulation Crowdfunding sets forth rules governing the offer and sale of securities under new Section 4(a)(6) of the Securities Act, which was adopted to implement the requirements under Title III of the Jumpstart Our Business Startups Act. The new rules are intended to assist start-up and early development companies in raising capital by expanding potential target investors in private placements.
In order to satisfy the new crowdfunding rules:
- the issuer may not raise more than $1 million per a year in crowdfunding under this rule (in addition to capital raised pursuant to other offerings, such as private placements under Rule 506 under Regulation D);
- the transaction is required to be facilitated through a registered intermediary broker-dealer or funding portal, which is subject to extensive restrictions and requirements regarding disclosure, compensation, and role in the transaction;
- the issuer must satisfy disclosure requirements, including filing certain information with the SEC (in connection with the offering and annually) and providing information to investors and the intermediary facilitating the offering, such as disclosure related to the terms of the offering, the use of the proceeds, the company’s financial condition, description of business, affiliated party transactions, and information regarding management and 20% or more equity holders; audited or reviewed financial statements of the issuer; and depending upon the amount offered, issuer tax returns; and
- individual investors, over a 12-month period, may invest in the aggregate across all crowdfunding offerings up to:
- if either their annual income or net worth is less than $100,000, than the greater of $2,000 or 5 percent of the lesser of their annual income or net worth or
- if both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth;
- during any 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000;
- the issuer may not be a non-U.S. company, an Exchange Act reporting company, certain investment companies, a company that violated the crowdfunding rules during the two years immediately preceding the filing of the offering statement, companies that have no specific business plan or only plan is to engage in a merger or acquisition with an unidentified company, or otherwise be subject to disqualification under the rules; and
- securities purchased through crowdfunding may not be resold for one year, except to an accredited investor and certain others.
As a result of the new rules, internet crowdfunding, which was previously only available to accredited investors under sites such as AngelList, Crowdfunder, Equitynet and RealtyMogul, may now be offered to all investors, and donation, product or rewards-based funding portals such as Indiegogo or Kickstarter, may offer securities, in each case subject to satisfying portal, issuer and investment requirements of Regulation Crowdfunding. There is no limitation on the type of security which may be offered.
Issuers who satisfy the requirements of other exemptions from the registration requirements of the Securities Act may rely upon those exemptions simultaneously with (or in lieu of) a Regulation Crowdfunding offering and such other exempt offering will not be integrated with the crowdfunding exempted offering for any purpose. An offering in compliance with Regulation Crowdfunding will preempt any registration requirements under State securities laws.
Given the cap on offering and investment size, issuer disclosure obligations and extensive regulatory conditions for crowdfunding intermediaries, it remains to be seen whether crowdfunding to non-accredited investors under Regulation Crowdfunding will provide a meaningful method for raising capital. If portals and/or broker dealer compliant platforms are established and registered with the SEC, this would be the first significant step to open a new avenue for capital raises.
Regulation Crowdfunding will be effective 180 days after the rules are published in the Federal Register. The forms enabling funding portals to register with the SEC will be effective January 29, 2016. The SEC’s final release is available here.
Concerned about food borne illness, the New York City Department of Health and Mental Hygiene (“NYC Department of Health”) adopted a new set of health regulations impacting sushi restaurants across New York City.(1)
Sushi quickly made its way onto the list of trendy New York City delicacies. Eager diners have flocked to sushi restaurants and sushi bars for their artistic and innovative sushi offerings. As New Yorkers savored the Japanese art, the NYC Department of Health became concerned with the risk of food poisoning and harmful bacteria associated with consuming raw fish.
By regulations adopted on March 10, 2015 and effective as of August 8, 2015, the NYC Department of Health requires that fish for raw consumption must be frozen and stored at temperatures as low as minus thirty one (-31° F) degrees Fahrenheit for periods of up to seven days.(2) The freezing process is intended “to destroy parasites in fish or fish products that are to be consumed raw…”(3)
While the change may seem contradictory to eating the “freshest” sushi, many of NYC’s finest sushi restaurants already embrace strict freezing requirements, using medical cryogenic freezers to reduce the risk of parasites and harmful bacteria.(4) In fact, some restaurants currently use freezing processes that reach temperatures of minus eighty three (-83° F) degrees Fahrenheit.(5)
Certain types of fish for raw consumption are excepted from the new regulations, including specific types of tuna, molluscan shellfish, aquacultered or farm raised fish, such as salmon, and fish eggs that have been removed from the skin and rinsed.(6)
Further, effective as of January 1, 2016, restaurants that serve raw fish will be required to provide, in writing, a consumer advisory regarding the risk of food borne illness.(7) Specifically, “when meat, fish, molluscan shellfish, or unpasteurized raw shell eggs are offered alone or as an ingredient in other foods, and are either raw or heated to a temperature below … [that which is now required], written notice must be provided to consumers of the increased risk of food borne illness from eating such raw or undercooked foods.”(8) Prior to January 1, 2016, warnings are still required, but may be given orally and need not be in writing.
With consumer health a foremost concern for the NYC Department of Health, the regulations seem to codify a practice already embraced by a number of sushi restaurants in NYC, but smaller sushi outfits may be left in the cold as a result of the freezing regulations. For example, some restaurants may not have the resources with which to purchase, or the physical space in which to store, the necessary freezers. The restaurants that fail to comply may be subject to fines of up to $2,000 for each violation.(9)
Are these new regulations a “raw deal” for sushi restaurants (especially those that cannot comply), or do they provide consumers with significant added protection against food borne illness? Only time will tell.
1 Ashley Welch, Frozen Tuna Recalled after Salmonella Outbreak Linked to Sushi, CBS News (July 23, 2015), http://www.cbsnews.com/news/frozen-tuna-recall-after-salmonella-outbreak-linked-to-sushi/; Greg Morabito, DOH Announces Chilly Regulation About Freezing Raw Fish Before Serving, NY Eater (July 13, 2015), http://ny.eater.com/2015/7/13/8945711/raw-fish-freezing-nyc
2 New York City, N.Y., Rules, Tit. 24, Health Code, §81.09(b)
3 New York City, N.Y., Rules, Tit. 24, Health Code, §81.09(b)
4 Morabito, supra note 1.
5 Morabito, supra note 1.
6 New York City, N.Y., Rules, Tit. 24, Health Code, §81.09(b).
7 New York City, N.Y., Rules, Tit. 24, Health Code, §81.11.
8 New York City, N.Y., Rules, Tit. 24, Health Code, §81.11.
9 New York City, N.Y., Rules, Tit. 24, Health Code, §3.11.