A few months ago, I posted about the received wisdom in the crowdfunding industry that
holds that because an issuer used a special purpose vehicle to handle its offering under
Regulation CF, that SPV counted as only one “holder of record” for ongoing reporting
purposes. Therefore, the theory goes, issuers could take advantage of the provision in
Rule 202(b)(2) that says if you have less than 300 holders of record, you can withdraw
from the Regulation CF three-year reporting regime after you have filed one Form C-
AR. This, despite the fact that the SPV, which may have more than 300 investors, is
also an “issuer.” Despite the fact that the Proposing and Adopting Releases in 2020
permitting the use of SPVs said absolutely nothing to sanction this early exit.
Well, the SEC Staff reckon the received wisdom is wrong. In a new Corporation Finance
Interpretation, the Staff says that crowdfunding SPVs are supposed to be conduits that
pass along the same rights as if the investor had invested in the issuer directly. This
includes three years of C-AR filings, unless there are fewer than 300 investors who
invested in the offering or one of the other events in Rule 202(b) (such as becoming a
registered public company) occur.
We will be back shortly with a post to explain how issuers who failed to file all their C-
ARs can get back into compliance.