Just as with issuer compliance, investment platform compliance with Regulation CF has been all over the map since Regulation CF went into effect in May. Under Rules 300 to 305 of Regulation CF, all intermediaries in Regulation CF offerings have specific requirements that they must meet. For instance, they must register with the SEC and FINRA, take measures to reduce the risk of fraud in transactions, provide educational materials to investors, and comply with process requirements for each offering. It is in the processes for each offering, Rule 303, that we see the most variation in compliance.
In particular, under Rule 303, all platforms are required to make available all of the information supplied by the issuer under Rule 201. A corollary to this, of course, is that platforms have to ensure that their issuers are actually providing all of the information required under Rule 201.
One platform that failed to meet this requirement appears to have been shut down by the SEC and FINRA. UFP, LLC, operating at www.ufundingportal.com, allowed issuers to post offerings that did not meet the disclosure requirements of Rule 201. It seems that these disclosure failures were facilitated by ufundingportal.com by the way that it prompted its issuers to provide disclosure information to investors. This seems to have included (as far as we can tell from the issuers’ Form C filings) providing a template for financial statements that in no way complied with generally accepted accounting principles.
What does this mean for all the issuers that were using ufundingportal.com? It means that none of the offerings were made in compliance with Regulation CF and each could face an enforcement action for being in violation of Section 5 of the Securities Act. However, when we reviewed ufundingportal.com prior to its shutting down, only one offering had generated any investor interest – and only $10 at that. Clearly, investors did not appreciate the dearth of information on those issuers, and it would seem unlikely that an enforcement action will be forthcoming.
Ufundingportal.com was the most egregious violator of crowdfunding platform compliance rules to date, but other platforms should be careful that they are not violating the requirements of Reg CF as well.