Crowdcheck Blog
Insights and information for online capital formation
In its recent rulemaking, the SEC added new Rule 3a-9 under the Investment Company Act to allow for the use of “crowdfunding vehicles” for Reg CF investments. It is important to recognize that crowdfunding vehicles are quite limited, and not at all similar to the special purpose vehicles (“SPVs”) used to aggregate accredited investors in angel or venture capital funding rounds.
In that type of SPV, there is often a lead investor or manager who may act on behalf of the investors in the SPV. Those persons could be exempt reporting advisers under the Investment Advisers Act, or even fully registered investment advisers. In this way, SPVs create real separation…
This entry is filed under Crowdfunding Conditions, Regulation, SEC, Section 4(a)(6), Securities Law
While the costs of preparing an offering under Reg CF are significantly lower than other types of securities offerings, they can still be expensive in terms of professional and marketing fees prior to having any sense of whether the offering will be successful. The SEC heard the complaints from issuers on this point and have adopted a testing the waters provision that is substantially similar to that used in Reg A.
Under new Rule 206, issuers contemplating an offering under Reg CF may make written or oral offers to test the waters (“TTW”) prior to filing a Form C. Once the Form C is filed, the offering is live and no more TTW can be done. There is no…
This entry is filed under Crowdfunding Conditions, Regulation, SEC, Section 4(a)(6), Securities Law
Big news out of the SEC yesterday with the adoption of its amended rules covering various types of offerings exempt from registration under the Securities Act.[1] These rule changes impact the way in which issuers will be able to use Reg CF, Reg A, Reg D, and their ability to communicate about funding requirements without having to rely on an exemption at all until they are ready to raise funds. There is a lot to unpack in these rules, and we will put down our thoughts in a series of blog posts.
This first blog post covers a change that is a bit of a no change. Since the start of the COVID-19 pandemic, the SEC has recognized the increased funding needs of…
This entry is filed under Crowdfunding, Crowdfunding Conditions, Federal Law, Regulation, SEC, Securities Law
After undertaking an offering under Regulation Crowdfunding or Tier 2 of Regulation A, issuers are required to file ongoing reports with the SEC. Regulation Crowdfunding requires an annual report, while Tier 2 of Regulation A requires an annual report and semi-annual report. Regulation Crowdfunding also requires companies to make the annual report available on its own website.
The annual report for Regulation Crowdfunding requires financial statements prepared in accordance with GAAP and certified by management. For Tier 2 of Regulation A, the annual report requires audited financial statements, and the semi-annual report requires management certified financial…
This entry is filed under Crowdfunding, Financial Statements, Regulation A
Following our update in March of this year, the Nebraska legislature has taken action to provide an exception to the requirement for a company to register as an issuer-dealer in the state when making offers and sales of securities under Tier 2 of Regulation A so long as no commission or other remuneration is paid for soliciting investors. We have also included a new section regarding state review of notice filings and the content of the Regulation A offering statement under their anti-fraud authority.
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…
This entry is filed under Capital Raising, Regulation A, Securities Law, State Law
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
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
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
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)
Often, companies are started with just an idea. A founder may decide to quickly form a limited liability company to help protect assets, or operate as a sole proprietor for a period of time. Prior to taking on funds from outside investors, that company may decide to form a corporation. For companies that follow that early stage cycle, the financial statements to be included in a Reg CF filing may not just be the financials of the corporation. If the previous entity or sole proprietorship was operating in the period required to be covered by GAAP financials, those activities must be represented in the financial statements as well.
In Reg CF, the SEC provides…
This entry is filed under Crowdfunding, Disclosure, Financial Statements, Section 4(a)(6)