Crowdcheck Blog

There’s a right way to do everything, even failing to file with the SEC. We experienced this recently, when one of our Regulation A clients was unable to make its annual 1-K filing covering the year 2016. We’d been watching their progress carefully, and so a few days before this year’s filing deadline of May 1, we picked up the phone and asked the regulators about the best way to handle the situation and to position ourselves to get back into compliance as soon as possible. First rule of holes: when you are in one, stop digging. In the Regulation A context, this means not making any offers or sales of securities when you don’t have an exemption from SEC…

So, one year ago today, Regulation CF went into effect. Small companies can make offerings up to $1 million (recently increased to $1.07 million) and roughly 325 companies have made Reg CF offerings so far. Roughly 80 companies have filed Form C-U to notify the SEC of the conclusion of their offering (they can also use Form C-U to report progress of the deal, so the raw numbers need refining). Another 50 or so companies have taken advantage of the fact that the SEC tells us that multiple closings are permitted once a company reaches its target offering amount, and so have received funds but have ongoing offerings. We’re talking about modest success so far.…

Since Regulation CF went live in May 2016, there have been approximately 280 companies that have made offerings made in reliance on it. Of these, only 51 or so have filed a Form C-U to show they have met their target offering amount and closed. It might be argued that this approximately 20% success rate itself indicates that there is no limitless pot of money awaiting companies who make it through the Form C disclosure process. However, it is early days yet, and many potential investors do not even know of Reg CF’s existence. Many companies are still in the offering process. It may also be the case that the crowd is showing discrimination – maybe some of the…

If you are about to launch a crowdfunding offering under Regulation CF, you should make sure you know when your financial statements will go “stale” (i.e., become too old). Under the disclosure requirements of Regulation CF, to “conduct” an offering (meaning to have an offering open and able to take investments) you must be using financials that are no older than a year and 120 days(link is external) since your previously completed fiscal year.  This means, if your fiscal year is a calendar fiscal year, and you are using December 31, 2015 financials, the offering can only stay open until May 1 of this year (120 days since the end of the 2016 fiscal year,…

So far, Regulation Crowdfunding appears to be doing what it was always intended to do. Small businesses are able to raise funds to begin or expand their business operations. Some companies could be categorized as innovative growth companies, others more main street. In any case, a common theme is that issuers are in need of cash and see crowdfunding as a method that provides additional benefits over traditional loans or angel investment – if those options were even available to the issuer to begin with. As offerings under Regulation Crowdfunding can take a few months, often with substantial upfront costs, many issuers find themselves in the position of needing…

One of the great benefits to issuers under the SEC’s rules for offerings under Tier 2 of Regulation A, effectively created by the JOBS Act, is the preemption of state requirements for registration of the offer and sale of securities. Known as “Blue Sky Laws”, these state specific rules added considerable cost to qualifying an offering under Regulation A. The SEC determined it was appropriate to preempt state qualification rules by deeming securities offered and sold under Tier 2 of Regulation A to be sold to “qualified purchasers” under Section 18 of the Securities Act. Under Section 18, states are still given the authority to require filing fees and notice…

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…

Funding portals are governed by unique communication rules under Regulation CF and FINRA’s Funding Portal Rules. These rules derive from the restrictions on funding portals regarding soliciting investors and providing investment advice. Additional information can be found in the memo here. 

Just as with issuer compliance, investment platform compliance with Regulation CF has been all over the map since Regulation CF went into effect in May. Under Rules 300 to 305 of Regulation CF, all intermediaries in Regulation CF offerings have specific requirements that they must meet. For instance, they must register with the SEC and FINRA, take measures to reduce the risk of fraud in transactions, provide educational materials to investors, and comply with process requirements for each offering. It is in the processes for each offering, Rule 303, that we see the most variation in compliance. In particular, under Rule 303, all platforms are required to make…

CrowdCheck CEO Sara Hanks was quoted in The Hill's covereage of the recent SEC Advisory Committee on Small and Emerging Companies meeting. Sara Hanks is the Co-Chair of ACSEC. http://bit.ly/2dV8c4V