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July 24, 2014 by Sara Hanks
Here's another sad story from our "fail files" although it has a happy ending. Entrepreneurs seeking outside investment may have seen references in subscription agreements (the agreements in which the investors agree to invest in the company and the company agrees to sell them shares or notes) to "being in good standing". This means being properly incorporated under the laws of a state and being up to date with the payment of franchise fees, or whatever the state calls its annual fees. Paying annual fees to a state may not seem like a big deal, and sometimes the bill from the state gets set aside, or the company doesn't have the funds to pay a few hundred bucks...
This entry is filed under Due Diligence, Failure, Securities Law, Blog
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July 16, 2014 by Andrew Hanks   THE STATE OF JOBS ACT CROWDFUNDING AND WHAT ENTREPRENEURS NEED TO KNOW   Equity and debt-based crowdfunding in the U.S. is partially up and running. President Obama signed the Jumpstart our Business Startups (JOBS) Act in April 2012, but the Securities and Exchange Commission (SEC) has not fully implemented all of its provisions. While many entrepreneurs and members of the crowdfunding community await final regulations governing Title III of the JOBS Act, which allows non-accredited investors to participate in crowd investing, an increasing number of entrepreneurs and businesses are benefitting from Title II crowdfunding (accredited...
This entry is filed under Crowdfunding, Fraud, In The News, SEC, Blog
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July 14, 2014 by Andrew Stephenson
Since March, when CrowdCheck first put together a summary of intrastate crowdfunding exemptions, there has been a significant amount of activity by various states to ease the regulatory process for companies to offer securities through the use of the intrastate exemption to SEC registration.  The following two charts were produced as a collaboration by CrowdCheck, Anthony Zeoli, Esq. of Ginsburg Jacobs LLC, and Georgia Quinn, Esq. of Seyfath Shaw LLP.   Summary of Enacted Intrastate Crowdfunding Exemptions   Summary of Proposed Intrastate Crowdfunding Exemptions
This entry is filed under Crowdfunding, SEC, Securities Law, Blog
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June 11, 2014 by Andrew Stephenson
In recent months, a lot of excitement has built up surrounding the enactment and use of intrastate crowdfunding exemptions as an alternative to waiting for the SEC to finalize Regulation Crowdfunding at the federal level.  Presently, at least thirteen states have introduced or enacted some form of exemption from state regulation for intrastate crowdfunding offerings.  These exemptions allow companies to sell securities in offerings exempt from SEC registration through making notice filings with their respective state securities commissions rather than following the standard intrastate practice of “qualifying” the offering with state regulators.  The exemptions...
This entry is filed under Bad Actor, Crowdfunding, Rule 506(c), SEC, Securities Law, Blog
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May 23, 2014 by Sara Hanks
How’s that for a title for a senior thesis at a liberal arts college? Point is, though, that there is no crowd in crowdfunding. There’s not one crowd but many crowds, and whether securities crowdfunding is going to work as expected depends which crowd shows up on any given day. Advocates of securities crowdfunding long argued that the wisdom of the crowd would expose and prevent fraud. We don’t think that always works; the most notorious exposures of fraud in donation/rewards campaigns so far have been effected by journalists, not the crowd, and as we’ve pointed out for a long time, misleading statements or false promises are also “fraud” and we are seeing the...
This entry is filed under Crowdfunding, Fraud, Blog
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May 05, 2014 by Andrew Stephenson
As many in the crowdfunding space are now well aware, the Washington State Attorney General has brought a case against the sponsors of the Asylum Playing Card Kickstarter campaign.  The lawsuit alleges the campaign made misrepresentations to project backers that constitute "unfair or deceptive acts in trade or commerce".  The basic facts alleged by the state are that Altius Management, a Nashville, TN based company, raised $25,146 from 810 project backers through a Kickstarter campaign for its Asylum Playing Cards that closed on October 31, 2012.  The campaign indicated that delivery of the playing cards was estimated to be around December 2012.  The Attorney...
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April 21, 2014 by Andrew Stephenson
An essential part of the due diligence on an offering of securities through Section 4(a)(6) crowdfunding or Rule 506(c) is ensuring that any previous issuances of securities (such as offerings to friends and family) are not defective.  For instance, if the securities were not authorized by the company's certificate of incorporation, or properly approved by the Board or existing shareholders, that issuance might be defective.  If an earlier offering of securities was botched, that might wreck a planned crowdfunding round, requiring an expensive and time consuming unwinding of transactions and company decisions.  CrowdCheck addressed this issue in an earlier blog...
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April 13, 2014 by Sara Hanks
Lawyers will know the name of Louis Loss, one of the gods of securities regulation. From one of his key works, writing about the Securities Act of 1933: In short, Congress did not take away from the citizen “his inalienable right to make a fool of himself.” It simply attempted to prevent others from making a fool of him. Loss was writing about one of the underlying principles of the Securities Act, which is full disclosure. A blog is not the place to get into the nitty gritty of disclosure versus merit regulation, and the impact that disclosure has on on the merits of an offering, but here’s the basic theory: if you tell the truth, the whole truth and nothing...
This entry is filed under Crowdfunding, Failure, Fraud, Securities Law, Blog
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April 07, 2014 by Andrew Stephenson
The buyout of Oculus VR has renewed interest in the possibilities of securities crowdfunding.  The tricky part of recreating the crowdfunding success of Oculus VR is to generate the same excitement as a rewards campaign within the bounds of a serious securities offering.  In our previous post, CrowdCheck noted some of the issues that can arise when undertaking a combined securities and donation/rewards crowdfunding campaign.  This post will look at a slightly different transaction that accomplishes a similar end: providing donation/rewards crowdfunding style perks as dividends, which some commentators have floated as an option for companies with limited cash....
This entry is filed under Crowdfunding, SEC, Section 4(a)(6), Securities Law, Blog
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April 02, 2014 by Andrew Stephenson
The Facebook acquisition of Oculus VR has brought a lot of attention to crowdfunding campaigns by early stage companies.  Some of that attention has not been positive; even resulting in death threats to the Oculus VR founders and their families.  Much of the more constructive criticism is based around the question of whether the 9,522 Kickstarter backers, who contributed $2,437,429 to Oculus VR, should be entitled to something as a result of such a large acquisition.  Clearly, the Kickstarter campaign was donation/rewards style crowdfunding.  The backers received everything they were going to get as a result of their contribution.  They did not acquire any...
This entry is filed under Crowdfunding, Section 4(a)(6), Securities Law, Blog
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