Early stage investing has seen a prolific form of capital raising enter the market over the last couple of years, called the “initial coin offering” or “initial token offering” (ICO). ICOs provide issuers with an alternative form of fundraising through the offering of tokens or coins that are virtual currencies or cryptocurrencies. In its simplest form, a company attracts investors looking to get in on the exploding returns in the cryptocurrency market by selling its own digital currency in an offering that looks a lot like crowdfunding. However, cryptocurrency has been headline news lately because of the high level of fraud in the market and the great volatility in value of such currencies.
In private mergers and acquisitions transactions in the United States, it has long been customary to exclude certain kinds of fraudulent conduct from negotiated limits of liability and exclusivity of legal remedies for losses arising out of the transaction, on the theory that the party that is defrauded should not be subject to such negotiated liability limits or be limited in its remedies. Traditionally, “fraud” was simply excluded from the coverage of the liability allocation provisions of the definitive agreement. More recently, however, parties have revisited this so called “fraud carve-out,” including the types of fraud and circumstances in which fraud should be excluded from a liability cap and who should be responsible for such uncapped liability. Without specificity, there is the potential for unintended consequences to the parties of converting claims that ostensibly are covered by the negotiated liability/remedy scheme into uncapped claims and the perceived unfairness of allocating that liability to investors not involved in the operations. The recent case of EMSI Acquisition Inc. v. Contrarian Funds, LLC, et al. is illustrative, particularly for transactions governed by Delaware law.
“Taking Care of Business” is a new blog from White and Williams’ Corporate and Securities Group. With the help of our friends in Cyber Law and Data Protection, Tax, Real Estate and Finance, Bankruptcy, Intellectual Property, Labor & Employment and Commercial Litigation, TCB will focus on emerging issues impacting the business community at every stage of the lifecycle from formation to growth and to exit. Whether it be important updates on day-to-day operational matters such as tax planning, employee benefits, commercial contracts, corporate finance, intellectual property, regulatory and data privacy and cybersecurity, or best practices and recent trends or legal developments of note applicable to transactional matters including acquisitions, strategic alliances, private equity and venture capital financings and debt financings, we’ve got you covered. And of course, we will keep you posted on any recent developments on the litigation and bankruptcy fronts too. In short, TCB will be a “one stop shop” for insights and commentary on everything relevant to owning and operating a business.
To give you a sense of the breadth of topics to be covered, today’s blog highlights five current legal issues that are on the minds of many of our clients. (more…)
- Southern District of New York Reaffirms That Syndicated Bank Loans Are Not Securities
- Are We Entering Another “Nuclear Winter” for Venture Capital Financing?
- M&A Risk Allocation: Drafting and Litigation Considerations in the Era of COVID-19
- Choosing Delaware Law Does Not Mean You Can Litigate In Delaware – The Sequel
- M&A Litigation Rising Amidst COVID-19 Uncertainty: Considerations for Litigators and Deal-Makers