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Rule 506(c)

Delivering All Things Crowdfunding and Online Investing

December 19, 2016 by Sara Hanks
If you raise capital online, you're probably a New Economy, Internet 4.0 type of company, right? Leverage the cloud, move fast, break rules (not securities rules), create synergies, it's all about the hustle. Right? Maybe. Some of you new era companies should be huddling in your hoodies for shame, 'cos some of you have distinctly old school bylaws when it somes to stock certificates. Yes, stock certificates. Those bits of paper with incomprehensible things written on them that say who owns shares in your company. Some of you still have bylaws that say that paper stock certificates MUST be issued. And you are engaging great new transfer agents who do everything...
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July 26, 2016 by Andrew Hanks
Read CrowdCheck General Counsel Huiwen Leo's article featured on Locavesting!
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November 23, 2014 by Sara Hanks
Sounds so disreputable, doesn’t it? But some of the SEC rules that apply to stock touts apply to several types of activity in the new online markets. Back in Ye Olden Tymes (the tech bubble days of the late 1990s) the SEC’s newly formed internet task force brought 23 enforcement actions against 44 companies and individuals in one epic event. All 23 cases involved allegations of illegal touting of securities under Section 17(b) of the Securities Act. This is what Section 17(b) says: It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give...
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October 31, 2014 by Andrew Stephenson
Securities laws in the United States are based around the idea of disclosure and protection of the naïve investor from unscrupulous practices by issuers of securities —  the sophisticated guys duping the little guy.  However, for many early-stage companies, the sophisticated guys at the table are the investors.  Not only do they hold all the cards on the terms of the deal, they know exactly what type of recourse they have if things do not work out the way they would like. Take the rules surrounding securities fraud.  To succeed in a securities fraud claim the investor must show that the issuer made a misstatement of a material fact, or omitted information...
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September 02, 2014 by Andrew Stephenson
Previously, CrowdCheck has brought readers the message that no securities law violation is too small to bring on SEC enforcement.  It is part of the "broken windows" theory of policing—if you let issuers and brokers get away with the small violations, it sends a message that compliance with securities laws is merely optional.  But what happens if instead of a small violation, the SEC has issued an enforcement order against a financial behemoth, who now is subject to the Bad Actor rule prohibitions on participation in offerings utilizing Rule 506 of Regulation D? Such is the situation that Citigroup now faces.   As a result of the delayed entering into an...
This entry is filed under Bad Actor, Rule 506(b), Rule 506(c), 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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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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February 05, 2014 by Brian Knight
What are we gonna do to screen for you… Sorry, as a child of the 80s I couldn’t resist, but my bad version of the classic “Cops” theme does reflect a serious question: how are issuers and intermediaries going to comply with the new “Bad Actor” disqualification provisions of Rule 506, Regulation A, and Regulation Crowdfunding offerings? The short answer is to use CrowdCheck’s BadActor Report℠. Why CrowdCheck is the answer will require some explanation. The first obvious question is, what are those disqualification provisions? Well, the full text of the rule is here, and a condensed analysis is here (page 7), but the really condensed analysis is this: companies...
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January 17, 2014 by Brian Knight
As an entrepreneur you are probably concerned about saving money.  Every dollar saved extends your runway just a little bit longer, lets you fight another day, and lessens the need for outside funding.  Fortunately, in many ways things are better than ever before for small businesses — computing power is cheap, off-the-shelf or web-enabled software provides functionality at a fraction of the cost of older solutions, and viral marketing provides the chance for a very high return on very limited investment.  Even the legal services market is being disrupted with new legal and quasi-legal (in the sense it isn’t required that someone be a lawyer to perform these...
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January 10, 2014 by Andrew Stephenson
Well, maybe.  The SEC doesn't like bad actors in securities offerings.  Since finalizing its Disqualification of Felon and Other "Bad Actors" from Rule 506 Offerings, the SEC has copied and pasted (with a few differences) the same disqualification terms into its proposed rules for securities crowdfunding and proposed amendments to Regulation A.  As a reminder, the disqualification works like this: an offering is disqualified from relying on Rule 506, Section 4(a)(6), or Regulation A if the issuer or any other covered person in the offering has a relevant criminal conviction, regulatory or court order, or other enumerated event.  Great, you say, liars get caught...
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