Crowdcheck Blog

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…

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…

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. “…

Startup investors all hope for a great “exit.” Most startups, of course, will never get to that point, but for the successful ones, the principal ways that investors get repaid for their faith in a high-growth early stage company is an eventual IPO, hopefully at a price much higher than the price they paid, or through the acquisition of the startup by another company. It can take a very, very long time for a startup to get to the point of an IPO. We aren’t aware of a company crowdfunded under Regulation CF having done an IPO yet. Mergers and acquisitions are a much more likely option for an exit for a company that raised funds in a Regulation CF offering. We’ve…

Reg A and Reg CF have been around for a few years now and we are finding that some of our clients, especially those that have made multiple offerings, are getting to the point where they need to consider the implications of Section 12(g) of the Securities Exchange Act, which requires companies to become registered with the SEC when they meet certain asset and investor number thresholds. Let’s start with the requirements of Section 12(g). It says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to…

A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company's Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska. Why Arizona and Nebraska, asked Paul? The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a…

For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Reg A or Reg CF offering?” is to point to the rules: Rule 251(b)(1) says Reg A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.” Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.” Slightly different formulations…

I have long (oh so long) been one of those urging the SEC to give some clarity with respect to the status of “finders.” See here for the latest piece. Early-stage companies raising funds very often reach out to a guy who knows some guys who have money and have invested in startups in the past. If the first guy wants to be compensated by reference to the amount of money his contacts are able to invest, he may well have violated the broker registration requirements of the Securities Exchange Act of 1934. And it’s not only him who needs to be worried; if a startup raises funds through someone who should have been registered as a broker and wasn’t, their sales of…

And by that I mean the geographic location of your place of business, if you have one. The pandemic has accelerated the existing trend of people working remotely and running their businesses from pretty much anywhere. Crash any Zoom call these days. Josh appears to be calling in from a desert island but it’s a greenscreen behind him hiding the litterbox in his basement. Shireen is sitting on the deck of a house in what appears to be the Mountain West, although we thought she lived in SoHo. Emily is desperately trying to hide the fact that she is yawning because it’s late in Italy and she hasn’t told anyone that she moved there in March. And Amit . . . get that…

Lawyers and finance peeps who practiced around the turn of the millennium will recall many of the issues that were raised by the misbehavior of investment banks’ research departments. I-bank analysts would take company executives golfing and, somewhere round the fourth hole, would ask “So, Executive, how is the distribution channel for the next quarter looking? If I said four thousand units a month, would I be off-base?” If the executive gave any answer other than “No comment and is that your ball in the sand?” then the company could be held to have “entangled” itself in the research report that resulted, and be responsible for any misleading statements in it.[…