MintzTech Industry Update - The HALOS Act & The Email Privacy Act

House of Representatives Passes HALOS Act

On April 27, the U.S. House of Representatives overwhelmingly passed the Helping Angels Lead Our Startups Act (H.R. 4498) or “HALOS Act.” The purpose of the bill is to boost “angel” investments by exempting certain investor events from being considered “general solicitation” under the federal securities laws. Under Rule 506(b) of Regulation D, issuers may not use general solicitation as part of the offering of securities to investors; an expansion of what is considered outside the accepted term “general solicitation” will make it easier for companies to raise money utilizing Rule 506(b).

The HALOS Act directs the SEC to revise Rule 502(c) of Regulation D to exempt certain sales events (“demo days”) hosted by groups such as angel investor groups — as well as groups sponsored by universities, trade associations, and not-for-profits. The bill defines “angel investor groups” as those that (1) are composed of accredited investors interested in investing personal capital in early-stage companies; (2) hold regular meetings and have defined processes and procedures for making investment decisions, either individually or among the membership of the groups as a whole; and (3) are neither associated nor affiliated with brokers, dealers, or investment advisers.

Despite bipartisan support, the bill is not without critics. The Obama administration issued a statement expressing concerns with the bill while also acknowledging the likely benefits in raising capital more efficiently. The administration stated that it would like to see increased protections for investors as the bill gets refined in Congress. After its passage in the House, the bill now travels to the Senate, where it will be taken up by the Committee on Banking, Housing, and Urban Affairs.

Congress Passes Email Privacy Act

On April 27, the U.S. House of Representatives passed the Email Privacy Act (H.R. 699), with a vote of 419-0. The bill would require government authorities to get a probable cause warrant from a judge before obtaining electronic communications and documents from service providers such as Google and Facebook. The proposed law would update the current law governing the area of personal data protection, the Electronic Communications Privacy Act (ECPA) of 1986, which allows law enforcement officials to search through emails, photos, documents, etc., that are stored in the cloud as long as they are 180 days old. In practice, many tech companies such as Apple and Google already demand a warrant before turning over data — which government officials have agreed to do in most cases. The new law also codifies the expectations laid out in the Sixth Circuit’s ruling in U.S. v. Warshak, which held that such protections are actually required by the 14th Amendment.

Despite overwhelming support in Congress — including 315 cosponsors in the House — the bill is not without some controversy, and privacy advocates are not fully satisfied with this latest step. An earlier version of the bill required that authorities disclose the existence of a warrant to the person(s) whose files would be searched, but this language was cut from the final bill. Nevertheless, companies have the ability to unilaterally alert users of inquiries by the government, which many email and storage providers, such as Apple and Dropbox, do.

On the other side of Capitol Hill, Senators Richard Burr and Dianne Feinstein are co-authoring a bill whose working title is the “Compliance with Court Orders Act of 2016.” This bill would address the recent controversy involving Apple’s unwillingness to assist in hacking its iPhones in criminal investigations, with the aim of punishing tech companies that do not comply with court orders in such situations. The bill is still in the early stages, but it is already stirring up much controversy in the political sphere and technology sector.

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