Understanding Reg CF: Know your advertising limits

Being in the crowdfunding space, my Twitter feed regularly fills up with “how-to” information on promoting crowdfunding campaigns, and who to hire for their experience running social media campaigns. While these outfits may know what they are doing when it comes to donation/rewards crowdfunding, much of what they offer is not compliant with Regulation CF. Social media campaigns and promoting the offering are very important for a successful raise under Regulation CF, but there are strict rules about what can be said and issuers need to be careful to not turn their entire website into an offer of securities.

The underlying rationale for the advertising rules under Regulation CF comes from the Congressional intent when creating securities crowdfunding – all information about the offering should be in one place. Congress then determined that the one place should be on the intermediary’s website. As the SEC recently reinforced in a set of Compliance and Disclosure Interpretations, any “advertising that is made other than through communication channels provided by the intermediary on the intermediary’s platform will be limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding.” This restriction kicks in when the issuer directly or indirectly identifies the target amount of the raise, the type of securities being offered, the price of the securities, or the target date for the campaign.

So when it comes to a social media campaign, could a company say “buy stock in a promising company ready to grow”? Likely not. That statement informed of the type of security, and prohibited information – specifically, information that goes beyond a brief, objective description of the company. As such, Regulation CF poses a challenge for any marketing agency that has worked on donation/rewards crowdfunding campaigns. In the donation/reward space, those social media messages need to entice people to click through to learn more. For Regulation CF, the messages themselves cannot include any enticing language.

Another question for issuers is what do you do with your regular business website during a Regulation CF offering? By itself, a company website does not trigger the Regulation CF advertising rules, and companies may continue to use their sites as they did before the campaign. However, if the company decides to advertise the offering on its own webpage, the entire page has become an offer of securities that is likely non-compliant with Rule 204(b) because the webpage will contain information that exceeds the limits under the rule.

Some companies have resolved this question by creating a new landing page for the website. That landing page contains no more than the Rule 204(b) information, but lets visitors know that if they want information on the Regulation CF offering they can click through to the intermediary’s platform, and if they want to visit the regular company website, to click through to the company’s website.

The rules are tricky, and a foreign concept to anyone who is unfamiliar with public securities offerings or has experience with the much-looser Regulation A restrictions. Over time, we will see many more instances of companies doing it wrong, and companies finding innovative solutions to comply with the Regulation CF advertising rules.

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