Crowdcheck Blog

We’ve had this question come up a couple of times in recent deals, so it’s worth flagging. Under Regulation A, you can have offering statements in effect (and thus offerings open) for more than a year (they can even last three years under certain circumstances). However, if your continuous offering is going to last more than a year, at least once a year you have to file a post-qualification amendment (PQA) to “refresh” the offering statement. This is required by Rule 252(f)(2)(i), which says: Post-qualification amendments must be filed in the following circumstances for ongoing offerings: (i) At least every 12 months after the qualification date to include the…

The SEC has proposed amending the definition of “accredited investors.” Accredited investors are currently defined as (huge generalization here) people who have net worth of $1 million (excluding principal residence) or income of $200,000 ($300,000 with spouse) or entities that have assets of $5 million. Here’s the full definition. The whole point of the accreditation definition was that it was it was supposed to be a way to determine whether someone was able to “fend for themself” in making investment decisions, such that they didn’t need the protection that SEC registration provides. Those people may invest in private placements. The thinking at the time the…

Look, there’s a whole shed-load of stupid out there. Some people will believe anything they read on the internet. The Earth is flat, the former president has been replaced by a clone and it’s impossible to summarize some of the stupid stuff that the QAnon people believe. These people vote, which is a problem for a different time and place. But these people invest, which is very much an issue for the crowdfunding community. People are influenced by trolls and the purveyors of false information. We’ve encountered various forms of trolling on the communication channels on Reg CF funding portals and on the social media sites of issuers raising funds. While some…

Most of the scams and schemes from the lower end of the public markets eventually make it over to the Reg A market, and this one is no exception. It’s essentially a variation on the “funder acting as undisclosed underwriter” caper. Section 3(a)(10) of the Securities Act provides that the issuance of securities pursuant to a court-approved settlement is exempt from registration. The general idea is that the oversight by the court provides the investor protection that would otherwise be provided by SEC registration. It’s intended to protect the lender whose debt is being converted into equity. Except in this case, it’s not the lender that needs protection. In…

The SEC has published a Concept Release on the Harmonization of Securities Offering Exemptions. The SEC summarizes the reason for this move as follows: Over the years, and particularly since the Jumpstart Our Business Startups Act of 2012, several exemptions from registration [of offerings with the SEC] have been introduced, expanded, or otherwise revised. As a result, the overall framework for exempt offerings has changed significantly. We believe our capital markets would benefit from a comprehensive review of the design and scope of our framework for offerings that are exempt from registration. More specifically, we also believe that issuers and investors…

Well, I already blogged about the zombies of the crowdfunding world, so let’s look at the vampires too. Those exploitive professionals and semi-professionals who seize on small companies desperate for capital and do nothing but suck the lifeblood from them, in terms of money, time and management focus, and deliver nothing. We are in the process of creating a “prohibited providers” list for one of our platform clients. Two other clients independently have each dubbed their own similar list the “creeps list.” OTC Markets publishes its prohibited service providers list, which is an admirable public service to everyone in this market. Who goes on a “creeps list”?…

Online securities platforms should be paying attention to the Lorenzo case, which the Supreme Court decided last month concerning the scope of Rule 10b-5 fraud liability. The case involved a broker who sent out a couple of emails at the direction of his boss. The boss created the content of the emails and approved them. All Mr. Lorenzo did, in effect, was add his name and press send. But he knew that there were misstatements in those emails. It’s already clear that anyone who makes a false statement (and there’s another Supreme Court case that explains what it means to “make” a statement that online platforms should be aware of) is liable under the anti-fraud…

April is coming, when Reg A filing companies must file their annual reports. And, as has happened in the past, some company will fail to get its 1-K filed in time.  The accountant was busy, the lawyers didn’t nag enough, the dog ate their filings . . . So what do you do when this happens to you and you have an ongoing offering under Reg A? Don’t panic. While you have failed to comply with the requirements of Reg A, there’s nothing bad that is going to happen to you on a permanent basis if you follow these rules: If you have an offering open, stop taking money. At 5.30 pm on April 30. If you take any money while you are not in compliance with the Reg A ongoing…

With the recent SEC proposal that would permit all companies, as opposed to just “emerging growth companies,” to talk to institutional investors prior to filing an offering with the SEC, we are heading towards more confusion with respect to what companies raising funds can say when. The confusion stems from the fact that the Securities Act of 1933 regulates both “offers” and sales of securities, and the term “offer” is very broadly defined.* When I used to teach securities law to new lawyers I used to joke that the mere statement “This is not an offer of securities” is in fact an offer of securities. The US is somewhat unique in its regulation of offers, in…

The ongoing government shutdown is hurting startups. Regulation A was amended in 2015 to give early-stage companies a way to raise funds from the general public, including online. While Reg A offerings are often referred to as “mini IPOs,” they really aren’t, for a number of reasons. IPOs are held when a company is ready to become a fully-registered company. They typically involve a cast of thousands, a long timeline, an extensive price discovery process and they generally aren’t held when the company is in desperate need of money. Reg A offerings, in contrast, are more usually used as an alternative to an angel or VC funding for startups, especially for…