Crowdcheck Blog
Insights and information for online capital formation
Online securities platforms should be paying attention to the Lorenzo case, which the Supreme Court decided last month concerning the scope of Rule 10b-5 fraud liability.
The case involved a broker who sent out a couple of emails at the direction of his boss. The boss created the content of the emails and approved them. All Mr. Lorenzo did, in effect, was add his name and press send. But he knew that there were misstatements in those emails.
It’s already clear that anyone who makes a false statement (and there’s another Supreme Court case that explains what it means to “make” a statement that online platforms should be aware of) is liable under the anti-fraud…
This entry is filed under Bad Actor, Disclosure, Fraud, Liability
Regulation A is an exemption from registration of securities under the Securities Act of 1933. At the same time, it is a public offering of securities. This puts Reg A in an odd place when it comes to SEC review.
For the most part, the operating companies utilizing Reg A are early stage companies. This is not entirely what the SEC envisioned when adopting its amended Reg A Rules. In that release, the SEC believed most use would come from companies opting for Reg A rather than a traditional IPO. Other observers took the view that Reg A would act as a later stage, pre-IPO round, allowing an exit opportunity for some venture investors. Instead, Reg A offerings by…
This entry is filed under Disclosure, Regulation A, SEC
April is coming, when Reg A filing companies must file their annual reports. And, as has happened in the past, some company will fail to get its 1-K filed in time. The accountant was busy, the lawyers didn’t nag enough, the dog ate their filings . . .
So what do you do when this happens to you and you have an ongoing offering under Reg A?
Don’t panic. While you have failed to comply with the requirements of Reg A, there’s nothing bad that is going to happen to you on a permanent basis if you follow these rules:
If you have an offering open, stop taking money. At 5.30 pm on April 30. If you take any money while you are not in compliance with the Reg A ongoing…
This entry is filed under Disclosure, Regulation, Regulation A, SEC
Since our last update in September 2017, we have learned a lot about the process for companies to register as issuer-dealers in certain states when making offers and sales under Regulation A without a broker-dealer. As a reminder, while states are preempted from requiring qualification or registration of offerings of securities under Tier 2 of Regulation A, states may require registration of the persons who will be selling those securities. Most states do not have such requirements, but some do. Our memo summarizes the requirements and includes important considerations for companies, especially those based in Florida, or that are selling into Florida or Arizona…
This entry is filed under Capital Raising, Regulation A, Securities Law, State Law
With the recent SEC proposal that would permit all companies, as opposed to just “emerging growth companies,” to talk to institutional investors prior to filing an offering with the SEC, we are heading towards more confusion with respect to what companies raising funds can say when.
The confusion stems from the fact that the Securities Act of 1933 regulates both “offers” and sales of securities, and the term “offer” is very broadly defined.* When I used to teach securities law to new lawyers I used to joke that the mere statement “This is not an offer of securities” is in fact an offer of securities. The US is somewhat unique in its regulation of offers, in…
This entry is filed under Capital Raising, Disclosure, Disclosure, Federal Law, Regulation, SEC, Securities Law
The ongoing government shutdown is hurting startups. Regulation A was amended in 2015 to give early-stage companies a way to raise funds from the general public, including online.
While Reg A offerings are often referred to as “mini IPOs,” they really aren’t, for a number of reasons. IPOs are held when a company is ready to become a fully-registered company. They typically involve a cast of thousands, a long timeline, an extensive price discovery process and they generally aren’t held when the company is in desperate need of money. Reg A offerings, in contrast, are more usually used as an alternative to an angel or VC funding for startups, especially for…
This entry is filed under Regulation, Regulation A, SEC, Blog
Deviating from its standard rulemaking procedures, the SEC issued final rules on December 19, 2018 to expand the eligibility requirements under Regulation A to include Exchange Act Reporting companies. This action was required by Congress as part of the “Economic Growth Act” that became law in May 2018. The SEC determined that it had little discretion when amending Regulation A in response to the Congressional directive, and went ahead and issued a final rule rather than a proposed rule for comment.
This change could prove to be significant for small, Exchange Act reporting companies that may not be eligible to register an offering on Form S-3. Additionally,…
This entry is filed under Regulation A, SEC
I wrote this and posted it on my personal blog at the time of the Christmas 2012 Shutdown. Unfortunately, it seems just as relevant today. I am particularly struck by the reference to the Dow performance.
Merry Christmas to all those who celebrate it.
Sara
[Date: many years in the future]
Many memories have faded now. But the clearest memories I have are of the events one Christmas that nobody quite agrees about. All of us who were there know that something happened, but when we try to describe it, the facts and details slide through our minds and become insubstantial, inchoate. Like things you see from the corner of your eye; when you turn, they aren’t…
This entry is filed under Educational
On December 7, 2018, FINRA released its 2018 Report on Examination Findings. This is the second annual report FINRA has released, and it provides a wealth of information for compliance officers. FINRA notes that it is not an exhaustive review of deficiencies exhibited by broker-dealers, but it does highlight those deficiencies that were significant and frequent. While the report focuses on broker-dealer operations, funding portals should take note as well, as FINRA has imputed certain broker-dealer supervisory and issuer review practices to funding portals under FINRA Funding Portal Rule 200.
The leading issue identified by FINRA was broker-dealers having…
This entry is filed under Bad Actor, Crowdfunding, Due Diligence Process, Regulation, Regulation A, Rule 506(c)
Confucius had some thoughts on precision of language:
Tsze-lu said, “The ruler of Wei has been waiting for you, in order with you to administer the government. What will you consider the first thing to be done?”
The Master replied, “What is necessary is to rectify names.” “So! Indeed!” said Tsze-lu. “You are wide of the mark! Why must there be such rectification?”
The Master said, “How uncultivated you are, Yu! A superior man, in regard to what he does not know, shows a cautious reserve.
“If names be not correct, language is not in accordance with the truth of things. If language be not in accordance with the truth of things, affairs cannot be carried on to…
This entry is filed under ICO, Types of Securities, Blog