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March 08, 2017 by Jamie Ostrow
If you are about to launch a crowdfunding offering under Regulation CF, you should make sure you know when your financial statements will go “stale” (i.e., become too old). Under the disclosure requirements of Regulation CF, to “conduct” an offering (meaning to have an offering open and able to take investments) you must be using financials that are no older than a year and 120 days since your previously completed fiscal year.  This means, if your fiscal year is a calendar fiscal year, and you are using December 31, 2015 financials, the offering can only stay open until May 1 of this year (120 days since the end of the 2016 fiscal year, adjusted since April 30...
This entry is filed under Crowdfunding, Disclosure, SEC, Section 4(a)(6), Blog
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November 09, 2016 by Andrew Stephenson
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...
This entry is filed under Crowdfunding, Disclosure, FINRA, SEC, Blog
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September 28, 2016 by Andrew Stephenson
On September 16, 2016, the SEC filed its first suspension of the Regulation A exemption against an issuer for failure to file its required annual statement. A suspension of the Regulation A exemption is a Bad Act, disqualifying the company from raising capital under Regulation A, Regulation CF, and Rule 506 of Regulation D. The order notes that under Rule 257 of Regulation A, issuers whose offering statements have been qualified under Tier 2 must file annual reports on Form 1-K for the fiscal year in which the offering statement became qualified and for any fiscal year thereafter. This requirement continues until the issuer meets the requirements to no longer...
This entry is filed under Bad Actor, Disclosure, Regulation A, SEC, Securities Law, Blog
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September 22, 2016 by Andrew Stephenson
While never intended to be the type of discussion that accompanies the management’s discussion and analysis of a registered securities offering, the SEC expects issuers making offerings under Regulation CF to discuss all the material information regarding their current liquidity and capital resources. Under Rule 201(s), this discussion must cover each period for which the issuer has provided financial statements as well as identification of any material changes that have occurred after the end of the periods covered by the financial statements. In practice, the discussion would include items like cash on hand, burn rate, and availability of other sources of...
This entry is filed under Crowdfunding, Disclosure, SEC, Section 4(a)(6), Blog
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September 12, 2016 by Andrew Stephenson
The financial statements and corresponding discussion of financial condition of an issuer undertaking a securities offering under Regulation CF is arguably the most important set of information for an investor to make an informed investment decision. While the story of the company is critical for gaining investor interest, it is the financials that help an investor understand the potential for financial return. The financial statements and discussion are required disclosures under Rule 201 of Regulation CF. However, according to CrowdCheck’s research, approximately 35% of Regulation CF issuers are conducting, or have conducted, offerings with non-compliant...
This entry is filed under Crowdfunding, Disclosure, SEC, Securities Law, Blog
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September 01, 2016 by Andrew Stephenson
Over the next few weeks, CrowdCheck will be posting a series of blog posts regarding issuer compliance with the disclosure requirements of Regulation CF. We believe this series will be important for prospective issuers and platforms, and ultimately investors. Of the ninety-six Form C filings as of September 1, 2016, very few have actually met the disclosure requirements under Rule 201 of Regulation CF. This is important for a variety of reasons. First, issuers operating under the belief that they qualify for Regulation CF may actually be in violation of Section 5 of the Securities Act. To qualify for Regulation CF, the issuer must provide all of the information...
This entry is filed under Bad Actor, Crowdfunding, Disclosure, Section 4(a)(6), Blog
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August 08, 2016 by Diana Leung
*Our summer intern, Diana Leung, who will be heading to Georgetown University in the fall, weighs in on disclosure compliance.   The brilliant start-up companies that define crowdfunding are transforming the meaning of the American Dream. Citizens not only have an equal opportunity to achieve prosperity through the traditional conduits of society but can now do so through their own original thoughts and ideas. Entrepreneurial success is no longer limited by the confines of well-established industries nor to the incredibly wealthy – from biodegradable toothbrushes to microwavable notebooks, crowdfunding is bringing creativity to fruition. But, crowdfunding still...
This entry is filed under Crowdfunding, Disclosure, Due Diligence, Securities Law, Blog
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July 26, 2016 by Andrew Hanks
Read CrowdCheck General Counsel Huiwen Leo's article featured on Locavesting! http://www.locavesting.com/featured/for-investors-the-key-to-crowdfunding-success-is-due-diligence/
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May 23, 2016 by Andrew Stephenson
As we have previously discussed, the Regulation CF disclosure requirement for the financial condition of the issuer has the potential to get inexperienced companies in trouble. It is in this section of the disclosure that optimistic entrepreneurs may provide misleading information by not providing the full details of performance measurements, or by not including information on the assumptions underlying any financial projections. Such statements may be misleading in their own right, or may omit information necessary to make the provided information not misleading – also known as securities fraud (see paragraph (c)). As we have also previously discussed,...
This entry is filed under Crowdfunding, Disclosure, Fraud, Offering materials, SEC, Blog
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May 09, 2016 by Sara Hanks
With one week to go we are hearing that a number of companies are realizing their financial statements are not going to be reviewed in time by their accountants. But they really want to launch on May 16! So they are planning to file on Form C for amounts less than $100,000 and "certifying" the financials, with a view to filing an amendment later. Think about this carefully before you do it. The financial statements (for any level of raise) are required to be prepared in accordance with Generally Accepted Accounting Principles (GAAP), reflecting all the requirements of GAAP with respect to revenue recognition, capitalization or expensing, and all that other...
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