Crowdcheck Blog
Insights and information for online capital formation
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
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
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
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…
This entry is filed under Disclosure, Types of Securities, Blog
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…
This entry is filed under Crowdfunding, ICO, Securities Law
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 entry is filed under ICO, Regulation
(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…
This entry is filed under Crowdfunding, ICO, Investing, Regulation A, Rule 506(c), SEC, Types of Securities
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…
This entry is filed under Capital Raising, Offering materials, Regulation A, SEC, Securities Law
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…
This entry is filed under Bad Actor, Crowdfunding, Failure, Liability, Regulation A, SEC, Blog