Crowdcheck Blog
Insights and information for online capital formation
A regulation crowdfund, it seems,
Is a way for small firms to raise some green,
Without need for a broker, or lots of red tape,
Through the power of the crowd, and a site to escape.
With a cap on the amount that can be raised,
And a limit on who can invest and be praised,
It's a way for the little guy to get funded,
And for investors to support something they've wanted.
So if you've got a dream, and you need some cash,
Consider a regulation crowdfund, don't be rash,
It might be the boost that your business needs,
To succeed in the market, and fulfill your dreams.
This entry is filed under Capital Raising, Crowdfunding, Section 4(a)(6)
When it comes to Regulation A and Regulation CF, the SEC puts a lot of focus on the financial statements being provided to investors. And that makes sense. Financial statements can tell a lot about a company, and the financial position of that company could be one of the primary reasons for investing (even if that means there is no financial history and investors are taking a risk).
Recently, we have seen a lot of would-be issuers get tripped up by the requirement to provide financial statements related to real estate they intend to acquire. Sometimes, they also received bad advice that they can form a new company and only provide audited statements for that…
This entry is filed under Crowdfunding, Financial Statements, Regulation A, SEC
We’ve heard from some of our clients that potential investors are getting spooked by the crypto winter and the FTX meltdown.
Yes, you can invest in crypto online, just like you can invest in online exempt public offerings under Regulations A, CF and D. But that’s pretty much where the similarity ends.
There are a number of differences between the crypto world and online exempt securities offerings.
These include the types of investments offered. Crypto comprises purely digital assets, which may be in various stages of development, may or may not work, may or may not have value and in some cases may vanish overnight if investors lose confidence in them.
The…
This entry is filed under Capital Raising, Crowdfunding, Disclosure, Disclosure, Due Diligence, Due Diligence Process, Failure, Regulation A, Section 4(a)(6), Types of Offerings
It’s 1-SA filing season again for Regulation A filers, and time to make some observations about the consequences of not filing.
We have encountered more than three companies in the last three months that have not filed all (or in one case, any) of their ongoing filings, and yet have requalified their offerings or qualified new offerings. This is a problem.
Let’s start with the ongoing reporting requirements. Assuming a Reg A filer has a December year-end, under Rule 257 it has to file its annual Form 1-K by April 30 and its semi-annual 1-SA by September 28 (subject to adjustments for leap years and weekends). It may also need to file “current” reports on Form 1…
This entry is filed under Crowdfunding Conditions, Due Diligence Process, Federal Law, Regulation, Regulation A, SEC, Securities Law
So May 2 marked the due date for most companies in the crowdfunding world to file their annual reports on Form 1-K or C-AR.
And many companies didn’t.
Do I need to remind you that in order to make an offering under either Reg A or Reg CF, if you have made offerings under that exemption before, you have to have made ALL ongoing reports required by the exemption in the previous two years before relying on that exemption again? Apparently I do.
Now for some companies, it’s possible to get back into compliance just by filing a compliant report (or reports plural, if you are missing more than one), even if it’s late. We’ve discussed in detail what companies are…
This entry is filed under Capital Raising, Crowdfunding, Crowdfunding Conditions, Federal Law, Regulation, Regulation A, Section 4(a)(6), Securities Law
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…
This entry is filed under Regulation A, Securities Law, State Law
When do companies need to tell investors about criminal proceedings that allege their officers and directors have engaged in fraud? According to some state regulators, it may be sooner than companies expect.
In a recent settlement, an issuer was found liable for failing to disclose in its Reg A offering the ongoing criminal proceeding involving allegations of fraudulent behavior against their CEO even though there had not been a conviction. Further, the criminal proceedings at issue were outside the United States.
The Form 1-A, which sets forth the SEC’s disclosure requirements for Reg A offerings, requires disclosure of any legal proceeding material to…
This entry is filed under Bad Actor, Federal Law, Regulation A, State Law
If you work with us, you will hear it many times that we strongly advise against financial projections … as they can get you in trouble. However, companies always seem to want to include projections that start from zero, and grow exponentially. This type of financial projection that is untethered to reality is a primary driver of what will cause investors to sue for being misled because investors expect companies to believe that those projected results are attainable.
One such commonly used financial projection is the hockey stick graph, as in the example below:
CrowdCheck Law’s projected legal revenues. (FYI, the size of the entire global legal market is…
This entry is filed under Disclosure, Fraud, SEC, Securities Law
The Theranos jury’s fraud convictions of Elizabeth Holmes, former CEO and founder of the now defunct Theranos, Inc., should give pause to startups seeking to build their reputation by touting their relationships with other companies. In the press to find financing, it can be tempting to use the logos of other companies, especially those that command market attention, to persuade investors to come on board. In the case of Theranos, Ms. Holmes placed the logos of Pfizer and Schering-Plough on Theranos reports without receiving permission from those companies. In her testimony, Ms. Holmes stated that she did not mean to deceive investors or business partners. …
This entry is filed under Fraud, Securities Law
Well, I thought I’d better blog something before people think we’ve vanished. We’ve just been too busy. But recently something happened that tied together two previous blog posts.
Trolls have become an increasing problem in the online space. The whole point of the crowdfunding regs is to give voice to the crowd, to enable retail investors to make informed investment decisions by learning from each other’s comments and questions and the issuers’ responses. They can’t do that when trolls interfere with the communication channels, posting the same content and saying the same things again and again, especially when they do so under several different identities. “…
This entry is filed under Fraud, SEC, Section 4(a)(6), Securities Law