Crowdcheck Blog
Insights and information for online capital formation
One of the most useful provisions of the Regulation A+ Rules issued by the SEC on May 25 is new Rule 255, "Solicitations of interest and other communications." This provision allows companies to "test the waters" and determine if there is any interest in its investment offering before it has filed anything with the SEC, prepared any offering materials, hired counsel, engaged an accountant, or even formed the company that will offer securities. However, there is a catch. Once a company has relied on the testing the waters provision under Rule 255 without having filed anything with the SEC or state regulators, it may only rely on Tier 2 of the new Regulation A…
This entry is filed under Crowdfunding, Regulation A, SEC, Securities Law, Blog
On March 25, 2015, the SEC adopted its final rules to implement Title IV of the JOBS Act of 2012. These rules are popularly known as "Regulation A+" and provide for two tiers of offerings under Regulation A. For more details on the new rules, check out CrowdCheck's summary here, http://www.crowdcheck.com/sites/default/files/Regulation%20A%20Memo%20F….
This entry is filed under Crowdfunding, Regulation A, SEC, Blog
One of the things that any securities due diligence should look at is whether a company or investment vehicle is in good standing with its state of organization. Good standing indicates that the company is validly formed, exists as a separate legal entity, and is up to date with its obligations for that particular state. For Delaware, that includes paying annual franchise taxes; and for many companies that consider the representation that the company "is in good standing" to be mere boilerplate, the March 1 filing deadline for Delaware franchise taxes has come and gone.
Failure to pay in time is the principal reason that a company would fall out of good…
This entry is filed under Disclosure, Due Diligence, Blog
A recent Washington Post article by Steven Overly asked "Why has hardly anyone applied for equity crowdfunding in D.C.?" This is an important question. The DC Department of Insurance, Securities and Banking can be applauded for its efforts to promote the new rules. Representatives of the Department have spoken about the new exception at a number of events and forums, including at the D.C Bar Association, at which CrowdCheck also presented.
The article in the Washington Post cites four reasons to explain the lack of uptake: the availability of non-investment crowdfunding through sites like Kickstarter and Indiegogo; general lack of knowledge about the…
This entry is filed under Bad Actor, Crowdfunding, SEC, Securities Law, Blog
Rethinking Section 3(a)(11) for State Crowdfunding
http://joewallin.com/2014/12/12/rethinking-section-3a11-state-crowdfund…
This entry is filed under Crowdfunding, SEC, Securities Law, Blog
Securities laws in the United States are based around the idea of disclosure and protection of the naïve investor from unscrupulous practices by issuers of securities — the sophisticated guys duping the little guy. However, for many early-stage companies, the sophisticated guys at the table are the investors. Not only do they hold all the cards on the terms of the deal, they know exactly what type of recourse they have if things do not work out the way they would like.
Take the rules surrounding securities fraud. To succeed in a securities fraud claim the investor must show that the issuer made a misstatement of a material fact, or omitted information…
This entry is filed under Disclosure, Due Diligence, Fraud, Rule 506(b), Rule 506(c), Securities Law, Blog
Previously, CrowdCheck has brought readers the message that no securities law violation is too small to bring on SEC enforcement. It is part of the "broken windows" theory of policing—if you let issuers and brokers get away with the small violations, it sends a message that compliance with securities laws is merely optional. But what happens if instead of a small violation, the SEC has issued an enforcement order against a financial behemoth, who now is subject to the Bad Actor rule prohibitions on participation in offerings utilizing Rule 506 of Regulation D?
Such is the situation that Citigroup now faces. As a result of the delayed entering into an…
This entry is filed under Bad Actor, Rule 506(b), Rule 506(c), SEC, Securities Law, Blog
Since March, when CrowdCheck first put together a summary of intrastate crowdfunding exemptions, there has been a significant amount of activity by various states to ease the regulatory process for companies to offer securities through the use of the intrastate exemption to SEC registration. The following two charts were produced as a collaboration by CrowdCheck, Anthony Zeoli, Esq. of Ginsburg Jacobs LLC, and Georgia Quinn, Esq. of Seyfath Shaw LLP.
Summary of Enacted Intrastate Crowdfunding Exemptions
Summary of Proposed Intrastate Crowdfunding Exemptions
This entry is filed under Crowdfunding, SEC, Securities Law, Blog
In recent months, a lot of excitement has built up surrounding the enactment and use of intrastate crowdfunding exemptions as an alternative to waiting for the SEC to finalize Regulation Crowdfunding at the federal level. Presently, at least thirteen states have introduced or enacted some form of exemption from state regulation for intrastate crowdfunding offerings. These exemptions allow companies to sell securities in offerings exempt from SEC registration through making notice filings with their respective state securities commissions rather than following the standard intrastate practice of “qualifying” the offering with state regulators. The exemptions…
This entry is filed under Bad Actor, Crowdfunding, Rule 506(c), SEC, Securities Law, Blog
As many in the crowdfunding space are now well aware, the Washington State Attorney General has brought a case against the sponsors of the Asylum Playing Card Kickstarter campaign. The lawsuit alleges the campaign made misrepresentations to project backers that constitute "unfair or deceptive acts in trade or commerce".
The basic facts alleged by the state are that Altius Management, a Nashville, TN based company, raised $25,146 from 810 project backers through a Kickstarter campaign for its Asylum Playing Cards that closed on October 31, 2012. The campaign indicated that delivery of the playing cards was estimated to be around December 2012. The Attorney…
This entry is filed under Crowdfunding, Fraud, Offering materials, Section 4(a)(6), Securities Law, Blog