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Goodwin Procter Identifies Legal Risks in Crowdfunding

posted Sep 30, 2014, 2:43 AM by J Shaw

Feldman: “Crowdfunding, while offering new and exciting opportunities, also comes with a host of legal challenges.”

LOS ANGELES—Goodwin Procter, a commercial real estate law firm, has launched a crowdfunding practice to handle the legal issues associated with the relatively new platform. Lew Feldman, a partner in the firm’s real estate capital markets group, will lead the new practice. To learn more about the firm’s crowdfunding practice and the legal risks involved with the emerging crowdfunding industry, we sat down with Feldman. Here, he shares his legal take on the new industry. What prompted Goodwin Procter to launch a crowdfunding practice?

Lew Feldman: Goodwin Procter has actually been addressing the needs of a growing number of our clients participating in online debt and equity raises for real estate and venture finance for sometime now. We have a market leading expertise advising both technology companies and real estate companies in accessing both debt and equity and navigating financial institutions, private equity and the public capital markets. Because of our clients' vision and pioneering entry into the space, we were early to understand the industry. Now that real estate and venture sponsors and investors are interested in entering the space, we are able to introduce them to our network within the crowdfunding industry and facilitate their ability to efficiently incorporate new technology into their activities—whether they want to launch proprietary portals or list or partner with existing multi operator marketplaces. How is crowdfunding changing the commercial real estate space?

Feldman: Historically, individuals and institutions were the primary investors in commercial real estate. In the early 20th century, syndication of debt and equity funded the development of much of Manhattan, including the Empire State Building.  Over time, with the growth of the private equity industry, real estate investment trusts (REITs) and other institutional aggregators of capital, commercial real estate has increasingly become controlled by large funds. Whereas in the past smaller investors pooled money to purchase individual assets, these new larger investors commonly buy real estate in pools, often in markets far from investors, with which they have little or no connection. By bringing off-line private equity funds online to meet real estate sponsors, deals can get funded with efficiencies in time and lower fees. Investors again have the opportunity to directly invest in projects both large and small throughout the nation with the click of a mouse. What are the legal challenges of crowdfunding?

Feldman: Crowdfunding, while offering new and exciting opportunities, also comes with a host of legal challenges. Individuals must keep in mind the legal risks relating to securities liability, company formation, fund formation, Regulations 506 (b) and (c), compliance under the JOBS Act, consumer protection, the public capital markets, M&A transactions, investment management, the Investment Company Act and the Investment Advisors Act. What are your goals for the crowdfunding practice?

Feldman: Regardless of business sector, our goals start with enabling clients to bring private equity raises online so that they may efficiently, prudently and profitably raise, deploy, manage and de-risk capital with greater transactional efficiencies, financial transparency and cost savings. With leading practices in securities, venture capital, intellectual property, real estate, privacy and private equity, we are facilitating scope, scale and success for Goodwin clients.

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