Crowdcheck Blog

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…

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…

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…

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…

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,…

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…

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…

With the approval by the House of Representatives of the Senate version of S. 2155, a number of financial regulatory reform measures were sent to the President’s desk for signature and became law on May 24. While some of these measures, especially those related to banking, are more controversial, there are a few provisions related to US securities law that have received broad support. These changes include allowing issuers to better use smaller national stock exchanges, increasing the Investment Company Act exemption threshold for venture capital funds, increasing the annual limit for exempt issuances for employee stock plans, and allowing Exchange Act…

As previously identified in a CrowdCheck investor alert here, a significant number of companies that have raised funds under Regulation Crowdfunding are no longer in business. That is to be expected. Early stage companies have a high rate of failure, and investors should understand that risk before investing. It is a general principle that a business failure itself is not fraud. Maybe revenues never grew the way the company thought. Perhaps larger competitors entered the space and out-competed the company. Maybe the company could not effectively scale its operations to bring down its cost of revenue. These, and an almost infinite variety of factors, can lead to…

While Section 4(a)(6) of the Securities Act and Reg CF preempt state regulation of offerings under Reg CF, states are still permitted to require notice filings be made. For Reg CF, rather than all 50 states plus the District of Columbia and other territories being able to require notice filings, only the state of the principal place of business of the company, and the state in which more than 50% of the securities are sold in the offering (if any) may require notice filings. Based on the manner most state securities laws are written, many states must enact specific rules to require notice filings. Some state laws provide for notice filing requirements without…