Crowdcheck Blog

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…

No, not a novel by Gabriel Garcia Marquez, but some musings on an aspect of the more complicated aspects of securities law relating to what needs to be registered under the Securities Act of 1933, part of what we law bores refer to as “the metaphysics.” Some investments happen in two stages. You buy convertible notes and then they convert into shares. You are issued warrants and you exercise those warrants. You get the idea. The important thing from the point of view of registration under the Securities Act is that there are usually two separate transactions, and you have to examine both of those transactions to make sure each is registered under the Securities…

We keep saying that ICOs have not changed the securities laws and there’s no real magic to how to apply existing securities laws to ICOs. We are sure you’ve read our memo on the topic. That’s certainly true when it comes to “bounty” or referral programs in the ICO space. In these programs, people get coin or tokens for spreading the word about an ICO offering. Normal securities laws apply. ICOs have not warped the space-time continuum so as to apply the Securities Act of 1933 differently than other classes of securities. This means, if your coin or tokens are securities: The companies (and we hope you have formed an actual company) issuing the coin or token…

Here's another issue addressed in our ever-expanding memo on the securities laws raised by ICOs. Some founders and company insiders, including those who got their securities in “pre-sales,” may want to resell their tokens when secondary trading starts. Hold up there, Skippy. You may wish to consider a couple of things before you do that. First, might you be in possession of any “inside information”? That is, stuff you know about the company or the project that other investors don’t and which they might think is important when deciding to buy your tokens? Thought so. Don’t sell without making sure everybody else in the market has that same information. Second,…

(This is the first of what will be a series of blogs addressing ICO offerings made in compliance with securities laws. Click here to view our memo that will cover the topic more extensively.) CrowdCheck is working on a Regulation A ICO. That means we are in effect trying to push a five-dimensional  square peg into a two-dimensional hole that was dug in the 1930s (please refrain from trying to find me better analogies). There are a lot of issues that have to be addressed. One we are looking at at the moment is Section 12(g) of the Securities Exchange Act. Section 12(g) says that if you have assets of $10 million and a certain number of “holders of record” of a…

Some folks, especially traditional securities lawyers, have recently been startled by flashy ads on the TV and radio for offerings of securities, specifically Regulation A securities in start-ups. We’ve had a number of calls, and there have even been some newspaper articles, asking “They can’t do that, can they?” They can. This is not the stuffy old traditional IPO world. This is Reg A, dudes and dudettes, where the rules are different and any start-up company that can afford it (ha!) can make sizzling ads that send potential investors rushing to buy their shares. Provided they comply with two simple rules (and watch the timing because the rules change once the…

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 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…