Crowdcheck Blog
Insights and information for online capital formation
We’ve noticed something interesting recently: Regulation A filings by companies that used to be SEC-reporting companies with quotes on the OTC Pink market, who have ceased to file reports with the SEC and whose trading activity on OTC has flatlined. Why would such companies file for a Reg A offering? Especially since so many of them are complete losers with weird agglomerations of business lines resulting from multiple reverse mergers (“We are a holding company operating in the mattress, muffin and blockchain businesses”)?
Because someone can make money, and it’s not the issuer and it’s not investors.
Here’s how. You start with an existing OTC-quoted shell…
This entry is filed under Fraud, Regulation, Regulation A, Securities Law
Part of the whole point of crowdfunding is that you leverage the “wisdom of the crowd.” That is, a start-up company presents the relevant information about its idea, its team, and its financials to the crowd, and the crowd weighs in with questions and commentary. The crowd may ask about the company’s competitors, challenge the valuation, ask for further information about the company’s plans and draw the company’s attention to issues management hadn’t thought about.
Crowd comments have the ability to improve disclosure and increase the knowledge of potential investors. This is why the regulators insist on crowd communication channels being clear, and examine…
This entry is filed under Crowdfunding, SEC, Blog
Well, actually nothing of the sort, but did I get your attention? The SEC is continuing to bring suit against ICO scammers. This one got my attention because (a) the scammers stuck the SEC seal on their website and tried to make out that they were a regulated entity and (b) said they could sell under Regulation A, when they hadn’t filed a Form 1-A with the SEC.
Two things here: First, these are dumb criminals. If you can’t work out that the SEC really likes its seal and takes it terribly personally when people who are not the SEC plaster it all over their offerings, or that it takes two seconds for folks to work out whether or not an offering has been qualified…
This entry is filed under Fraud, Regulation A, SEC
We love crowdfunding here at CrowdCheck, and we really believe it is a great opportunity to invest in some interesting, novel and amazing companies. And you may have sorted through the companies to discover what you believe will be the next Facebook or Google. And you may be right and may have found your pink unicorn with rainbows, sparkles and all things shiny. But then you read what you have purchased, only to discover that the security that you think you have purchased doesn’t hold the windfall that you are expecting. There may be provisions and/or terms in the security or in the subscription agreement that you sign to purchase that security that detract…
This entry is filed under Crowdfunding, Disclosure, Offering materials
We are seeing a lot of references to KYC/AML in the ICO/STO space. Lots of shops include this function as part of their pitch to create smart contracts and host the offering on their platform.
The problem is that what they are doing in most cases isn’t actually KYC/AML and this could lead to confusion in the future.
KYC, or “know your client,” is the process that a regulated entity like a broker-dealer goes through in order to establish not just the identity of its client, but also that client’s risk tolerance and the suitability of the investment for the client in question. Online platforms that are brokers routinely do this through a series of questions when…
This entry is filed under Disclosure, Educational, ICO, Blog
Often, companies are started with just an idea. A founder may decide to quickly form a limited liability company to help protect assets, or operate as a sole proprietor for a period of time. Prior to taking on funds from outside investors, that company may decide to form a corporation. For companies that follow that early stage cycle, the financial statements to be included in a Reg CF filing may not just be the financials of the corporation. If the previous entity or sole proprietorship was operating in the period required to be covered by GAAP financials, those activities must be represented in the financial statements as well.
In Reg CF, the SEC provides…
This entry is filed under Crowdfunding, Disclosure, Financial Statements, Section 4(a)(6)
Early-stage companies often fail. They often get acquired, too, sometimes in distressed circumstances and sometimes in circumstances leading to Lambos all round (most often the former). Companies who have raised funds under Reg A and Reg CF are no exceptions.
Unlike companies that made only private offerings to investors, companies that have made Reg A or Reg CF offerings are required to make reports to the SEC. Reg A companies must file an annual report on Form 1-K (together with audited financials), a semi-annual report on Form 1-SA (with unaudited financials) and report material events on a Form 1-U. Companies that have made Reg CF offerings must make annual…
This entry is filed under Crowdfunding, Regulation, Regulation A, SEC, Blog
I’ve never been a fan of the “the SAFT is a security but the token isn’t” theory. As a refresher, the Simple Agreement for Future Tokens (“SAFT”) is an investment contract where funds will be used by the issuer to develop its blockchain platform and issue digital tokens that can be used on that platform as repayment for the SAFT. If you are selling contracts to obtain tokens which will eventually do a thing, but can’t yet, on a platform that is yet to be built, chances are those tokens issued to repay the SAFTs are securities.
That being the case, if you are issuing SAFTs or SAFEs (Simple Agreement for Future Equity) or any form of convertible instrument that…
This entry is filed under ICO, Types of Securities, Blog
With the approval by the House of Representatives of the Senate version of S. 2155, a number of financial regulatory reform measures were sent to the President’s desk for signature and became law on May 24. While some of these measures, especially those related to banking, are more controversial, there are a few provisions related to US securities law that have received broad support. These changes include allowing issuers to better use smaller national stock exchanges, increasing the Investment Company Act exemption threshold for venture capital funds, increasing the annual limit for exempt issuances for employee stock plans, and allowing Exchange Act…
This entry is filed under Capital Raising, Regulation A, Securities Law
As of Friday night, when the SEC’s EDGAR system went to bed, there had been 61 filings of Form C-AR made (with the rest due Monday for all companies with a 12/31 fiscal year-end). This is the form that companies have to file to keep their investors updated when they have sold securities under Regulation Crowdfunding. Form C-AR requires updated information about the company’s business and its financial performance and, most importantly, the provision of financial statements.
The information that companies need to provide on Form C-AR is set out in Rule 202(a) under the Securities Act and can be found here.
Only 13 of those 61 companies to have filed a Form C-AR…
This entry is filed under Crowdfunding, Disclosure, SEC, Blog