Supreme Court Rules DOMA Unconstitutional – Securities Law And Corporate Finance Implications

On June 26, 2013, the U.S. Supreme Court, in U.S. v. Windsor, ruled that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional because it violates the Fifth Amendment's equal protection guaranty for persons of the same sex who are legally married under the laws of their state of residence.

Prior to the Windsor ruling, Section 3 of DOMA provided that only persons of the opposite sex are recognized as "spouses" or "married" for purposes of federal law. Section 3 of DOMA applied to over 1,000 federal laws, rules and regulations, including the federal securities laws. As a result of the Windsor ruling, same-sex couples who are legally married in the state of their residence1 are required to be recognized as "spouses" or "married" for purposes of federal law. The Windsor ruling has immediate implications for public companies and compliance with certain securities laws, rules and regulations. In addition, the ruling may also impact self-regulatory organizations, such as the Financial Industry Regulatory Authority, Inc. (FINRA).

Below is a high-level overview of some of the most significant effects the Windsor ruling is expected to have on various types of securities compliance:

Definition of Accredited Investor - Regulation D

Certain exemptions, notably Rules 505 and 506 of Regulation D under the Securities Act of 1933, as amended (Securities Act), to registration of an offer or sale of a Company's securities limit the number of investors who are not "Accredited Investors." Federal securities laws define an Accredited Investor, in the context of an individual, to include:

a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person, or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. Previously, the determination of joint net worth and joint income excluded same-sex couples. As a result of Windsor and specifically its impact on the definition of a "spouse," a same-sex married couple who previously did not meet the Accredited Investor test as individuals will now meet the test as a recognized married couple. In addition, issuers seeking to raise capital from exempt offerings under Regulation D will be entitled to...

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