Crowdcheck Blog
Insights and information for online capital formation
A few weeks ago, the State of Ohio was thrust into notoriety in the crowdfunding community because the state issued notices to Reg CF issuers organized in the state that they would be required to pay a notice filing fee for their offerings. In response to those notices, CrowdCheck sent a letter to the Ohio Division of Securities (the “Division”) requesting clarification of the filing rules and fees, as well as asking the Division to ease the process for Reg CF issuers. The Division has replied to that letter and provided guidance for Ohio based issuers offering securities under Reg CF. The full letter is available here.
First, the Division makes clear that…
This entry is filed under Crowdfunding, Offering materials, Section 4(a)(6), Securities Law, Blog
Many small companies considering undertaking an offering under Tier 2 of Regulation A may find it advantageous to conduct their offering without the use of a registered broker-dealer. Perhaps they have a core base of supporters that would be interested in investing, or they have the ability to undertake their own online, and offline, marketing campaign to get investor interest.
However, one potential pitfall of this strategy is that a handful of states require the company to register with the state as an issuer-dealer — essentially the company itself must be registered like a broker-dealer in the state.
CrowdCheck has put together a helpful summary of the…
This entry is filed under Bad Actor, Regulation A, Securities Law, Blog
After extensive time spent reviewing the communication rules under Regulation CF and their interplay with other securities laws, as well as consulting with the SEC, CrowdCheck has released its comprehensive memo on communications and publicity by issuers prior to and during a Regulation CF offering.
The communication rules for Regulation CF differ substantially from corresponding communication rules for offerings under Regulation A and Rule 506(c) of Regulation D, and from IPOs. We hope this memo will bring some clarity to the communications rules for platforms and issuers.
This entry is filed under Crowdfunding, SEC, Section 4(a)(6), Securities Law, Blog
As we have previously discussed, the Regulation CF disclosure requirement for the financial condition of the issuer has the potential to get inexperienced companies in trouble. It is in this section of the disclosure that optimistic entrepreneurs may provide misleading information by not providing the full details of performance measurements, or by not including information on the assumptions underlying any financial projections. Such statements may be misleading in their own right, or may omit information necessary to make the provided information not misleading – also known as securities fraud (see paragraph (c)).
As we have also previously discussed,…
This entry is filed under Crowdfunding, Disclosure, Fraud, Offering materials, SEC, Blog
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…
This entry is filed under Crowdfunding, Regulation A, SEC, Section 4(a)(6), Blog
One of the best practices that has developed in the realm of donation/reward crowdfunding is to provide regular updates to campaign backers over email in addition to publishing them on the crowdfunding platform. These updates are important — they keep backers informed about the status of the campaign, and provide information about company events relevant to the success of the idea. When it comes to Regulation CF, however, this practice can’t be adopted for equity backers (otherwise known as investors) in exactly the same manner as for donation/reward crowdfunding.
Title III of the JOBS Act is not very friendly to communications being made by individual issuers…
This entry is filed under Crowdfunding, Disclosure, SEC, Section 4(a)(6), Securities Law, Blog
Regulation Crowdfunding becomes effective on May 16 of this year. What can you say now about your crowdfunding campaign that you plan to launch on May 16? Nothing. Not a word. Otherwise, you blow your exemption from registration and may no longer be eligible to use Reg CF.
Recall, Reg CF is an exemption from registration of securities. Any offer of securities must be registered or exempt. Reg CF is not effective until May 16. So any communication about your offering made before you file your Form C on May 16 is an offer of securities that does not meet the requirements for any available exemption. This could result in a violation of Section 5 of the Securities…
This entry is filed under Crowdfunding, SEC, Securities Law, Blog
In a rather innocuous requirement, the SEC requires that a company offering securities under Regulation Crowdfunding “describe [its] financial condition…” However, the short directive masks a rather tall order for companies. The discussion of the financial condition of the company will be one of the most analyzed parts of the Form C, both by prospective investors and by regulators. It is here that we are likely to see companies omitting material information in an effort to present an optimistic picture of the company, whether or not the intent was pernicious.
The SEC does provide some guidance to companies making this disclosure. However, that guidance is…
This entry is filed under Crowdfunding, Disclosure, SEC, Blog
Since the SEC’s adoption of its Regulation A+ rules, creating two tiers of Reg A offerings and two sets of procedures to follow, CrowdCheck has worked with a few companies seeking to qualify offering under Reg A. These companies have found themselves to be guinea pigs for state regulators. In the case of Tier 1, it was working through the coordinated review process. In the case of Tier 2, it has been working with states to figure out what notice needs to be filed and when.
Fortunately, NASAA understands the challenges associated with the disparate filing requirements for Tier 2 offerings. On January 27, 2016, NASAA announced a request for comment regarding its…
This entry is filed under Regulation A, SEC, Securities Law, Blog
One seemingly critical difference between conducting a Regulation A offering under Tier 1 or Tier 2 at the federal level is the requirement to provide audited financial statements. The SEC does not require audited financial statements for Tier 1 offering, whereas audited financial statements are required for Tier 2. However, this difference is merely a red herring. Nearly every Tier 1 offering will require audited financial statements, because it is likely that at least one state in which the issuer intends to offer its securities requires audited financial statements.
In our review of the statutory and administrative rulings of state securities regulators, 27…
This entry is filed under Disclosure, Regulation A, SEC, Blog