Advertisements
Tag Archives: 2014

Estimated Crowdfunding Industry Growth Expected to Exceed $10 Billion in 2014

25 Jun

 Three new white papers aimed at financial advisors, asset managers and institutions to help them identify and understand new growth opportunities in crowdfunding, peer-to-peer lending and other opportunities in the alternative asset space

By Robert Hoskins

OAK BROOK, Ill. Millennium Trust Company released three new white papers aimed at financial advisors, asset managers and institutions to help them identify and understand new crowdfunding, peer-to-peer lending and other opportunities in the alternative asset space.

Estimated Crowdfunding Growth in 2014 Expected to Exceed $10 Billion

Estimated Crowdfunding Growth in 2014 Expected to Exceed $10 Billion

The first white paper, “New Opportunities In The Alternative Asset Marketplace” discusses what alternative assets are, provides an overview of the alternative asset marketplace, and reviews some of the challenges that have made it difficult for individual investors to access and understand alternatives.

The white paper dives into how uncertain financial markets and increased investor demand have led to regulatory changes that are transforming the alternative asset industry while simultaneously creating opportunities for innovative financial technology firms. The white paper highlights ways in which some responsive financial services firms – such as custodians that specialize in the custody of alternatives – are developing technology and service solutions to meet the rapidly changing needs of both institutions and investors.

The second white paper, titled “New Opportunities In The Alternative Asset Marketplace: Peer-To-Peer Lending” examines the ways that pioneering custody firms have been working to support the growing, yet relatively new, online peer-to-peer lending industry.

While media coverage has mostly looked at how the developing P2P space has caused a disruption in the traditional bank lending model, there has been little mention of how these changes have impacted the role of the industry’s critical service providers, including qualified custodians. This paper discusses this issue by examining what forward thinking firms are doing to address concerns about the safekeeping of client assets in this growing alternative asset class.

The third, “New Opportunities In The Alternative Asset Marketplace:  Crowdfunding” examines how relatively new investment opportunities presented by crowdfunding are becoming the best example of “creative destruction.” In other words, crowdfunding is becoming a disruptive force in the traditional model of how individuals and companies can secure capital by going directly to investors as opposed to long-established system of going to local banks or Wall Street.

New Opportunities In The Alternative Asset Marketplace:  Crowdfunding

New Opportunities In The Alternative Asset Marketplace: Crowdfunding

Driven by the credit crunch, investor demand for alternative investment opportunities, the JOBS Act and a growth in technology, this market has exploded in recent years. Of course, as this market continues to grow, today’s custodians must evolve along with it. Those that can’t, or those that don’t, will miss out on a potentially huge opportunity, finding themselves sitting on the sidelines unable to meet the needs of current and prospective clients.

“It is an interesting time to be involved in the alternative investment industry,” said Reggie Karas, Managing Director of the Alternative Solutions Group at Millennium Trust. “Education is almost always cited as a key concern for advisors and individuals who are looking to allocate to alternatives. As an independent custodian, we don’t give investment advice-or talk about the ‘why’-but we feel our custody work with many of the leading alternative investment platforms gives us unique insight into the ‘how.’  These white papers are a result of that work and are meant to offer an educated look into how these online marketplaces and supporting service providers are creating new opportunities for investors and to offer some basic education about alternative investments.”

# # #

 

Advertisements

Texas Entrepreneur Networks Reports that Proposed Texas Intrastate Crowdfunding Exemption Expected to Pass in August 2014

27 Apr

Texas Entrepreneurs and Small Businesses Will Soon Be Able to Collect $5,000 from Unaccredited Investors By Selling Private Equity Shares

By Robert Hoskins

Austin, Texas – The Securities board of the State of Texas has just issued their proposed ruling on an intrastate crowdfunding law.  The goal of intrastate crowdfunding is to provide more capital for early stage companies at a reduced cost.

Front Page PR is one of the leading Crowdfunding PR firms in America

Front Page PR is one of the leading Crowdfunding PR firms located in Austin, Texas 

The key highlights are:

1. Unaccredited investors can invest up to $5K/year in a startup.

2. Startups raising $1M or less need only have the CEO certify their financial statements rather than provide audited statements.

3. Texas Crowdfunding portals need only fill out a form and pay a standard filing fee which basically provides a basic background check.  The portal needs to track investor/issuer comments and all communications must take place on the portal. Portals do not need to sit for exams and must maintain records of transactions for five years.

The proposed ruling will be open for comment for 60 days and is expected to pass in final form in August, 2014.

John Morgan of the State Securities Board of Texas invites your comments on the proposed ruling. You can contact him at (512) 305-8302.

Here’s the proposed ruling:

Intrastate Crowdfunding Exemption

The Texas State Securities Board proposes new <*>139.25,
concerning intrastate crowdfunding exemption. The new rule would
provide a registration exemption for securities offered in an
intrastate crowdfunding offering. The filing used to claim the
exemption is new Form 133.17, which is being concurrently
proposed. New <*>115.19, concerning Texas crowdfunding portal
registration and activities, is also being proposed to allow
offers and sales of the exempt securities to be made using a
Texas crowdfunding portal’s Internet website.

The new rule is proposed under Texas Civil Statutes,
Articles 581-5.T, 581-12.C, and 581-28-1. Section 5.T provides
that the Board may prescribe new exemptions by rule. Section
12.C provides the Board with the authority to prescribe new
dealer, agent, investment adviser, or investment adviser
representative registration exemptions by rule. Section 28-1
provides the Board with the authority to adopt rules and
regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations
governing registration statements and applications; defining
terms; classifying securities, persons, and matters within its
jurisdiction; and prescribing different requirements for
different classes.

During the development of these proposals, the staff had
discussions with a number of firms and individuals who are
interested and have expertise in the area so their insight and
concerns could be considered. Federal crowdfunding proposals and
provisions in other states were also reviewed.

Under the proposal, the offering must comply with the federal
intrastate offering exemption and Securities and Exchange
Commission (“SEC”) Rule 147, so the securities do not have to be
registered at the federal level. Accordingly, the issuer must be
a Texas entity and the offers and sales limited to Texas
residents. Some Rule 147 requirements have been incorporated
into the proposed exemption to assist issuers in determining if
they qualify for the exemption. Rule 147 also places
restrictions on resale of the securities and requires certain
precautions against interstate offers. These are noted in
subsection (k) of the proposal.

The proposal is designed to assist small issuers conducting
offerings that are local in nature where many investors are
likely to be part of the company’s customer base or from the
surrounding community that will benefit from the growth of local
businesses and the jobs they provide. Accordingly, subsection
(b)(2) excludes certain issuers from the exemption, including:
(1) investment companies, which engage primarily in the business
of investing in other securities; (2) SEC reporting companies;
and (3) blind pool and blank check companies.

The offering amount would be capped at $1 million in a
12-month period. This cap would be reduced by the amount
received for sales of the issuer’s securities that occur within
six months before, during, or within six months after any offers
or sales made in reliance upon the exemption.

The issuer cannot accept more than $5,000 from a single
purchaser unless the purchaser is an accredited investor. Funds
raised must be placed in an escrow account until the minimum
target offering amount specified in the disclosure statement is
reached.

The proponents of crowdfunding argue that the hard work of
making investment decisions — filtering out the best investments
and limiting fraud — can be addressed in part by tapping the
“wisdom of the crowd” over the Internet. Individuals interested
in the crowdfunding campaign (members of the “crowd”) share
information about the project or business with each other and use
the information to decide whether to fund the campaign based on
the collective “wisdom of the crowd.” To facilitate this aspect
of crowdfunding, subsection (h) of the proposal requires that
information about the offering be posted on the Internet website
for a minimum of 21 days before the securities may be sold.
During this time, and for the course of the offering, all
communications between the issuer, prospective purchasers, or
investors must occur on the Internet website. The site must
provide channels for potential purchasers and investors to
communicate with each other, and those communications must be
visible to others on the site.

To alert interested persons to an offering, an issuer may
distribute a limited notice stating the issuer is conducting an
offering, giving the name of the general dealer or Texas
crowdfunding portal and a link to the Internet website. To keep
the issuer from inadvertently converting an intrastate offering
to an interstate one, thereby losing the federal exemption, the
proposal restricts distribution of the notice to within Texas and
requires it to contain a disclaimer reflecting that the offering
is limited to Texas residents and that offers and sales on the
Internet website are made only to Texas residents. A similar
disclaimer is required on the Internet website for the same
reason. The site also must require evidence of Texas residency
before allowing a person to view securities offering materials.
As with securities, there is also an exclusion from federal
registration available to dealers whose business is exclusively
intrastate. The disclaimer, evidence of residency requirement,
and regulatory approach taken in the proposal appear adequate for
purposes of characterizing the dealer’s activities, as well as
the securities offering, as one conducted intrastate.

Subsection (i) requires that a disclosure statement be
provided to each prospective purchaser on the Internet website.
Material information and risk factors must be disclosed and
topics to be addressed in the document noted. Additional
guidance for content of the disclosure statement will be in a
document prepared by the staff and posted on the Agency’s website
with other small business and crowdfunding information. Required
disclosures, common to crowdfunding offerings generally, are in
subsection (i)(2). These disclosures also appear in concurrently
proposed <*>115.19, which requires a Texas crowdfunding portal to
obtain an affirmative acknowledgment from the investor regarding
the disclosures before investment is permitted.

Many proponents of small business incentives cite the
requirement to provide audited or reviewed financial statements
prepared in accordance with generally accepted auditing standards
and generally accepted accounting principals as too costly for
small businesses. Section (i)(3) allows the issuer’s financial
statements to be certified by its principal executive officer.
However, if the issuer has audited or reviewed financial
statements prepared within the last three years, such financial
statements must also be provided.

Payments to unregistered persons are prohibited by
subsection (l), which also prohibits certain compensation
arrangements and affiliations between an issuer and the general
dealer or Texas crowdfunding portal operating the website on
which its offering appears.

To ensure that the exemption is not misused, subsection (m)
contains two types of disqualifications. Bad actor
disqualifications are addressed in subsections (m)(2) and (m)(3).
Issuers should be aware that, although a prior incident may not
be a disqualification under this proposal, it may still need to
be disclosed to potential purchasers and investors if it is
material information under subsection (i)(1). Subsection (m)(4)
prohibits offerings with a 12-month period by different issuers
with common control persons or where the proceeds of offerings by
different issuers will be combined in a single plan of financing.

Offerings made pursuant to the proposed exemption will not
have to meet the filing requirements in the Texas Securities Act,
<*>22.A, and Chapter 137 of the Board Rules (relating to
Administrative Guidelines for Regulation of Offers) since those
provisions do not apply to transactions exempt under <*>5, but a
notice on new Form 133.17 must be filed with the Securities
Commissioner along with a copy of the issuer’s disclosure
statement and the summary of the offering that appear on the
Internet website.
<

The new rule is proposed under Texas Civil Statutes,
Articles 581-5.T, 581-12.C, and 581-28-1. Section 5.T provides
that the Board may prescribe new exemptions by rule. Section
12.C provides the Board with the authority to prescribe new
dealer, agent, investment adviser, or investment adviser
representative registration exemptions by rule. Section 28-1
provides the Board with the authority to adopt rules and
regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations
governing registration statements and applications; defining
terms; classifying securities, persons, and matters within its
jurisdiction; and prescribing different requirements for
different classes.

The proposal affects Texas Civil Statutes, Articles 581-7,
581-12, 581-13, 581-14, 581-15, and 581-18.
<*>139.25. Intrastate Crowdfunding Exemption.
(a) General. The State Securities Board, pursuant to the Texas
Securities Act (Act), <*>5.T, exempts from the securities
registration requirements of the Act, any offer or sale of
securities of an issuer through a registered general dealer or a
registered Texas crowdfunding portal, provided that all offers
and sales made pursuant to the offering are made to Texas
residents, completed solely within this state, and all the
requirements of this section are satisfied.

(b) Issuer.

(1) The issuer is an entity that has filed a certificate of
formation with the Texas Secretary of State, is organized under
the laws of Texas, and is authorized to do business in Texas and:
(A) At least 80% of the issuer’s gross revenues during its most
recent fiscal year prior to the offering are derived from the
operation of a business in Texas;
(B) At least 80% of the issuer’s assets at the end of its most
recent semiannual period prior to the offering are located in
Texas;
(C) The issuer will use at least 80% of the net proceeds of this
offering in connection with the operation of its business within
Texas; and
(D) The principal office of the issuer is located in Texas.
(2) The issuer is not, either before or because of the offering:
(A) A company, that engaged or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading in
securities;
(B) Subject to the reporting requirements of the Securities and
Exchange Act of 1934, <*>13 or <*>15(d), 15 U.S.C. <*>78m and
<*>78o(d); or
(C) a company that has not yet defined its business operations,
has no business plan, has no stated investment goal for the funds
being raised, or that plans to engage in a merger or acquisition
with an unspecified business entity.

(c) Coordination with federal securities laws. The transaction
meets the requirements of the federal exemption for intrastate
offerings in the Securities Act of 1933, <*>3(a)(11), 15 U.S.C.
<*>77c(a)(11), and Securities and Exchange Commission Rule 147,
17 CFR <*>230.147.

(d) Offering. The offering must be made exclusively through an
Internet website operated by a registered general dealer or
registered Texas crowdfunding portal. All consideration received
for all sales of the securities in reliance on this exemption
shall not exceed $1 million in a 12-month period. This amount is
reduced by the aggregate amount received for all sales of
securities by the issuer in another offering that does not take
place prior to the six month period immediately preceding or
after the six month period immediately following any offers or
sales made in reliance upon this section.

(e) Individual investments. The issuer will not accept more than
$5,000 from any single purchaser unless the purchaser is an
accredited investor as defined in <*>107.2 of this title
(relating to Definitions). The issuer must have a reasonable
basis for believing that the purchaser of a security under this
section is a Texas resident and, if applicable, an accredited
investor.

(f) Escrow. All payments for purchase of securities offered under
this section are directed to and deposited in an escrow account
with a bank or other depository institution located in Texas and
organized and subject to regulation under the laws of the United
States or under the laws of Texas, and will be held in escrow
until the aggregate capital raised from all purchasers is equal
to or greater than the minimum target offering amount specified
in the disclosure statement as necessary to implement the
business plan. Investors will receive a return of all their
subscription funds if the target offering amount is not raised by
the time stated in the disclosure statement.

(g) Communications.

(1) All communications between the issuer, prospective
purchasers, or investors taking place during the offer of
securities pursuant to this section must occur on the Internet
website of the registered general dealer or Texas crowdfunding
portal. During the time the offering appears on the Internet
website, the website must provide channels through which
potential purchasers and investors can communicate with one
another and with representatives of the issuer about the
offering. These communications must be visible to all those with
access to the offering materials on the Internet website.
(2) Notwithstanding the foregoing, the issuer may distribute a
notice within Texas limited to a statement that the issuer is
conducting an offering, the name of the registered general dealer
or portal through which the offering is being conducted and a
link directing the potential investor to the dealer or portal’s
Internet website. The notice must contain a disclaimer that
reflects that the offering is limited to Texas residents and
offers and sales of the securities appearing on the Internet
website are limited to persons that are Texas residents.

(h) Internet website.

(1) The Internet website operated by a registered general dealer
or the Texas crowdfunding portal must meet the following
requirements:
(A) the website must contain a disclaimer that reflects that
access to securities offerings on the website is limited to Texas
residents and offers and sales of the securities appearing on the
website are limited to persons that are Texas residents;
(B) evidence of residency within Texas is required as a condition
of entry before viewing securities-related offering materials on
the website and before sale is made to a prospective purchaser.
An affirmative representation made by a prospective purchaser
that the prospective purchaser is a Texas resident and proof of
at least one of the following would be considered sufficient
evidence that the individual is a resident of this state:
(i) a valid Texas driver license or official personal
identification card issued by the State of Texas;
(ii) a current Texas voter registration; or
(iii) general property tax records showing the individual owns
and occupies property in this state as his or her principal
residence; and
(C) prior to offering an investment opportunity to residents of
Texas and throughout the term of the offering, the registered
general dealer or registered portal shall give the Securities
Commissioner access to the Internet website.
(2) Information about the issuer and the offering posted on the
Internet website, entry onto which is conditioned upon evidence
of Texas residency, operated by the registered general dealer or
registered portal consists of:
(A) a copy of the disclosure statement required by subsection (i)
of this section;
(B) a summary of the offering, including:
(i) a description of the entity, its form of business; principal
office, history, business plan, and the intended use of the
offering proceeds, including compensation paid to any owner,
executive officer, director, or manager;
(ii) the identity of the executive officers, directors, and
managers, including their titles and their prior experience and
the identity of all persons owning more than 20% of the ownership
interests of any class of securities of the company; and
(iii) a description of the securities being offered and of any
outstanding securities of the company, the amount of the
offering, and the percentage ownership of the company represented
by the offered securities.
(3) The information required by paragraph (2) of this subsection
must be made available on the Internet website to the
Commissioner and potential investors for a minimum of 21 days
before any securities are sold in the offering.

(i) Disclosure statement. A disclosure statement must be made
readily available and accessible to each prospective purchaser at
the time the offer of securities is made to the prospective
purchaser on the Internet website. The disclosure statement must
contain all of the following:
(1) Material information and risk factors. All information
material to the offering, including, where appropriate, a
discussion of significant factors that make the offering
speculative or risky. Guidance on the categories of information
to include can be found by reviewing the small business offering
information provided by the Texas State Securities Board on its
Internet website. Topics to be addressed include, but are not
limited to:
(A) general description of the issuer’s business;
(B) history of the issuer’s operations and organization;
(C) management of the company and principal stockholders;
(D) how the proceeds from the offering will be used;
(E) financial information about the issuer;
(F) description of the securities being offered; and
(G) litigation and legal proceedings.
(2) Disclosures. The issuer shall inform all prospective
purchasers and investors of the following:
(A) There is no ready market for the sale of the securities
acquired from this offering; it may be difficult or impossible
for an investor to sell or otherwise dispose of this investment.
An investor may be required to hold and bear the financial risks
of this investment indefinitely;
(B) The securities have not been registered under federal or
state securities laws and, therefore, cannot be resold unless the
securities are registered or qualify for an exemption from
registration under federal and state law.
(C) In making an investment decision, investors must rely on
their own examination of the issuer and the terms of the
offering, including the merits and risks involved; and
(D) No federal or state securities commission or regulatory
authority has confirmed the accuracy or determined the adequacy
of the disclosure statement or any other information on this
Internet website.
(3) Financial statements. Issuers must provide current financial
statements certified by the principal executive officer to be
true and complete in all material respects. If the issuer has
audited or reviewed financial statements prepared within the last
three years, such financial statements must also be provided to
investors.

(j) Notice filing. At least 21 days before an offer of securities
is made in reliance on this section or use of any publicly
available Internet website in an offering of securities in
reliance on this section, the issuer shall file with the
Securities Commissioner:
(1) Form 133.17, Crowdfunding Exemption Notice;
(2) the disclosure statement, required by subsection (i) of this
section; and
(3) the summary of the offering, required by subsection (h)(2)(B)
of this section.

(k) Resales of securities. The issuer and all its officers,
directors, and employees shall make the disclosures required by
SEC Rule 147(e) and (f), 17 CFR <*>230.147(e) and (f). The issuer
must place a legend on the certificate or other document
evidencing that the securities have not been registered and
setting forth the limitations on resale contained in SEC Rule
147(e), including that for a period of nine months from the date
of last sale by the issuer of the securities in the offering, all
resales by any person, shall be made only to Texas residents.

(l) Commissions and remuneration. A commission or other
remuneration shall not be paid or given, directly or indirectly,
for the offer or sale of the securities unless the person
receiving such compensation is registered in Texas as a dealer or
agent or as a Texas crowdfunding portal. The issuer may not list
its securities on the Internet website of a general dealer or
portal that holds an interest in the issuer. The issuer may not
compensate a general dealer or a portal by providing a financial
interest in the issuer as compensation for services provided to
or on behalf of the issuer. A general dealer or portal may not be
affiliated with or under common control with an issuer whose
securities appear on its Internet website.

(m) Disqualifications.
(1) For purposes of this subsection, “control person” means an
officer; director; other person having the power, directly or
indirectly, to direct the management or policies of the issuer,
whether by contract or otherwise; or a person that owns 20% or
more of any class of the outstanding securities of the issuer.
(2) This exemption is not available if the issuer, the issuer’s
predecessors, any affiliated issuer, or any control person of the
issuer:
(A) within the last five years, has filed a registration
statement which is the subject of a currently effective
registration stop order entered by any state securities
administrator or the United States Securities and Exchange
Commission;
(B) within the last five years, has been convicted of any
criminal offense in connection with the offer, purchase, or sale
of any security, or involving fraud or deceit;
(C) is currently subject to any state or federal administrative
enforcement order or judgment, entered within the last five
years, finding fraud or deceit in connection with the purchase or
sale of any security; or
(D) is currently subject to any order, judgment, or decree of any
court of competent jurisdiction, entered within the last five
years, temporarily, preliminarily, or permanently restraining or
enjoining such party from engaging in or continuing to engage in
any conduct or practice involving fraud or deceit in connection
with the purchase or sale of any security.
(3) Paragraph (2) of this subsection shall not apply if:
(A) the party subject to the disqualification is licensed or
registered to conduct securities-related business in the state in
which the order, judgment, or decree creating the
disqualification was entered against such party;
(B) before the first offer under this exemption, the state
securities administrator, or the court or regulatory authority
that entered the order, judgment, or decree, waives the
disqualification; or
(C) the issuer establishes it did not know and exercising
reasonable care, based on a factual inquiry, could not have known
that a disqualification existed under this subsection.
(4) This exemption is not available to an issuer if:
(A) a control person of the issuer is also a control person of
another issuer that has made a securities offering in Texas
within the previous 12-month period;
(B) a control person of the issuer is also a control person of
another issuer that is concurrently conducting a securities
offering in Texas; or
(C) the proceeds of the offering will be combined with the
proceeds of a securities offering by another issuer as part of a
single plan of financing.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency’s
legal authority to adopt.

Texas Crowdfunding Portal

The Texas State Securities Board proposes amendments to
<*>115.1, concerning general provisions; and <*>115.3, concerning
examination. New <*>115.19, concerning Texas crowdfunding portal
registration and activities, is also proposed.

The amendment to <*>115.1 would add a definition for “Texas
crowdfunding portal” and provide a restricted dealer registration
category as such.

The amendment to <*>115.3 would provide an examination
waiver to an applicant applying for restricted dealer
registration as a Texas crowdfunding portal.

New <*>115.19 would set out the registration process and
permitted activities of a dealer registered as a Texas
crowdfunding portal.

A Texas crowdfunding portal would be a Texas-only dealer,
able to utilize the exclusion from federal registration available
to dealers whose business is exclusively intrastate. The
portal’s activities would be limited to operating an Internet
website for <*>139.25 exempt offerings. It could not participate
in secondary market transactions or engage in the activities in
subsection (c).

To preserve the intrastate character of the dealer’s
activities and the offering, the Internet website must contain
appropriate disclaimers and obtain evidence of Texas residency
before allowing access to the offering materials or permitting a
sale to be made.

Prior to offering securities on the Internet website, the
portal conducts background and regulatory checks on the issuer
and each of the issuer’s control persons. Additionally, the
portal must obtain affirmative acknowledgments of certain
disclosures common to all crowdfunding offerings from investors
before a sale can be made.

Records required to be kept by the portal are specified in
subsection (e), rather than the more extensive, and mostly
inapplicable, list of records required of other securities
dealers. A portal is also not required to maintain a supervisory
system. A portal’s records are subject to inspection and must be
furnished on request of the Securities Commissioner.

A Texas crowdfunding portal would apply for registration by
filing new Form 133.15, which is being concurrently proposed. It
would also provide its organizational documents to establish its
status as a Texas entity. It would be subject to the same
registration fee as other dealers registered in Texas. New Form
133.15 would also be used for filing amendments. The portal is
subject to the post-registration reporting requirements in
<*>115.9. When the portal withdraws its registration, it would
use new Form 133.16, which is also being proposed.

<*>115.19. Texas Crowdfunding Portal Registration and
Activities.

(a) Intrastate portal. A Texas crowdfunding portal:

(1) must be an entity incorporated or organized under the laws of
Texas, authorized to do business in Texas, and engaged
exclusively in intrastate offers and sales of securities in
Texas;
(2) must limit its activities to operating an Internet website
utilized to offer and sell securities exempt from registration
pursuant to <*>139.25 of this title (relating to Intrastate
Crowdfunding Exemption); and
(3) does not operate or facilitate a secondary market in
securities.

(b) Internet website. The Internet website operated by the Texas
crowdfunding portal must meet the following requirements:

(1) the website must contain a disclaimer that reflects that
access to securities offerings on the website is limited to Texas
residents and offers and sales of the securities appearing on the
website are limited to persons that are Texas residents;
(2) evidence of residency within Texas is required as a condition
of entry before viewing securities-related offering materials on
the website and before sale is made to a prospective purchaser.
An affirmative representation made by a prospective purchaser
that the prospective purchaser is a Texas resident and proof of
at least one of the following would be considered sufficient
evidence that the individual is a resident of this state:
(A) a valid Texas driver license or official personal
identification card issued by the State of Texas;
(B) a current Texas voter registration; or
(C) general property tax records showing the individual owns and
occupies property in this state as his or her principal
residence;
(3) prior to offering an investment opportunity to residents of
Texas and throughout the term of the offering, the portal shall
give the Securities Commissioner access to the Internet website;
and
(4) prior to permitting an investment in any securities listed on
the Internet website, the portal shall obtain an affirmative
acknowledgment from the investor of the following:
(A) There is no ready market for the sale of the securities
acquired from this offering; it may be difficult or impossible
for an investor to sell or otherwise dispose of this investment.
An investor may be required to hold and bear the financial risks
of this investment indefinitely;
(B) The securities have not been registered under federal or
state securities laws and, therefore, cannot be resold unless the
securities are registered or qualify for an exemption from
registration under federal and state law.
(C) In making an investment decision, investors must rely on
their own examination of the issuer and the terms of the
offering, including the merits and risks involved; and
(D) No federal or state securities commission or regulatory
authority has confirmed the accuracy or determined the adequacy
of the disclosure statement or any other information on this
Internet website.

(c) Prohibited activities. A Texas crowdfunding portal shall not:

(1) offer investment advice or recommendations;
(2) compensate employees, agents, or other persons not registered
with the Securities Commissioner for soliciting offers or sales
of securities displayed or referenced on its platform or portal;
(3) hold, manage, possess or otherwise handle investor funds or
securities;
(4) be affiliated with or under common control with an issuer
whose securities appear on the Internet website;
(5) hold a financial interest in any issuer offering securities
on the portal’s Internet website; or
(6) receive a financial interest in an issuer as compensation for
services provided to or on behalf of an issuer.

(d) Background and regulatory checks.

Prior to offering securities to residents of Texas, the Texas crowdfunding portal
shall conduct a reasonable investigation of the background and
regulatory history of each issuer whose securities are offered on
the portal’s Internet website, and of each of the issuer’s
control persons. “Control persons” for purposes of this
subsection means the issuer’s officers; directors; or other
persons having the power, directly or indirectly, to direct the
management or policies of the issuer, whether by contract or
otherwise; and persons holding more than 20% of the outstanding
equity of the issuer. The portal must deny an issuer access to
its Internet website if the portal has a reasonable basis for
believing that:
(1) the issuer or any of its control persons is subject to a
disqualification under <*>139.25 of this title (relating to
Intrastate Crowdfunding Exemption);
(2) the issuer has engaged in, is engaging in, or the offering
involves any act, practice, or course of business that will,
directly or indirectly, operate as a fraud or deceit upon any
person; or
(3) it cannot adequately or effectively assess the risk of fraud
by the issuer or its potential offering.

(e) Recordkeeping.

(1) A Texas crowdfunding portal is not required to maintain the
records listed in <*>115.5 of this title (relating to Minimum
Records) or to maintain a supervisory system under <*>115.10 of
this title (relating to Supervisory Requirements).
(2) A portal shall maintain and preserve for a period of five (5)
years from either the date of the document or communication or
the date of the closing or termination of the securities
offering, whichever is later, the following records related to
offers and sales made through the Internet website and to
transactions where the portal receives compensation:
(A) records of compensation received for acting as a portal,
including the name of the payor, the date of payment, name of the
issuer, and name of the investor;
(B) copies of information provided by the portal to issuers
offering securities through the portal, prospective purchasers,
and investors;
(C) any agreements and/or contracts between the portal and an
issuer, prospective purchaser, or investor;
(D) any information used to establish that an issuer, prospective
purchaser, or investor is a Texas resident;
(E) any information used to establish that a prospective
purchaser or investor is an accredited investor as defined in
<*>107.2 of this title (relating to Definitions);
(F) any correspondence or other communications with issuers,
prospective investors, and/or investors;
(G) any information made available through the portal’s Internet
website relating to an offering;
(H) ledgers (or other records) that reflect all assets and
liabilities, income and expense, and capital accounts; and
(I) any other records relating to the offers and/or sales of
securities made through the Internet website.
(3) A portal shall maintain and preserve a copy of the Form
133.15 (relating to Texas Crowdfunding Portal Registration), Form
133.16 (relating to Texas Crowdfunding Portal Withdrawal of
Registration), and the Form U-4 (Uniform Application for
Securities Industry Registration or Transfer) used to register
the portal and its designated officer, and any amendments
thereto, for a period of five (5) years from the termination of
the portal’s registration.
(4) The records required to be maintained and preserved under
this subsection may be archived if they are over two years old.
(5) A portal shall, upon written request of the Securities
Commissioner, furnish to the Commissioner any records required to
be maintained and preserved under this subsection.
(6) The portal shall provide to the Commissioner access,
inspection, and review of any Internet website operated by a
portal and records maintained by the portal; and
(7) The records required to be kept and preserved under this
subsection must be maintained in a manner, including by any
electronic storage media, that will permit the immediate location
of any particular document so long as such records are available
for immediate and complete access by representatives of the
Commissioner. Any electronic storage system must preserve the
records exclusively in a non-rewriteable, non-erasable format;
verify automatically the quality and accuracy of the storage
media recording process; serialize the original and, if
applicable, duplicate units of storage media, and time-date for
the required period of retention the information placed on such
electronic storage media; and can download indexes and records
preserved on electronic storage media to an acceptable medium. In
the event that a records retention system commingles records
required to be kept under this subsection with records not
required to be kept, representatives of the Commissioner may
review all commingled records.

(f) Filings.

(1) Application. In lieu of the application requirements in
<*>115.2 of this title (relating to Application Requirements), a
complete application for a Texas crowdfunding portal consists of
the following and must be filed with the Securities Commissioner:
(A) Form 133.15, including all applicable schedules and
supplemental information;
(B) Form U-4, for the designated officer and a Form U-4 for each
agent to be registered (officers of a corporation or partners of
a partnership shall not be deemed agents solely because of their
status as officers or partners);
(C) a copy of the articles of incorporation or other documents
which indicate the form of organization, certified by the Texas
Secretary of State or by an officer or partner of the applicant;
(D) any other information deemed necessary by the Commissioner to
determine the financial responsibility, business repute, or
qualifications of the portal; and
(E) the appropriate registration fee(s).
(2) Post-reporting requirements. A portal is subject to the
dealer and agent requirements in <*>115.9 of this title (relating
to Post-Registration Reporting Requirements).
(3) Renewal. Registration as a portal expires at the close of the
calendar year, but subsequent registration for the succeeding
year shall be issued upon written application and upon payment of
the appropriate renewal fee(s), without filing of further
statements or furnishing any further information unless
specifically requested by the Commissioner.

Forms

The Texas State Securities Board proposes three new rules,
concerning forms adopted by reference. Specifically, <*>133.15,
which would adopt by reference the Texas Crowdfunding Portal
Registration form; <*>133.16, which would adopt by reference the
Texas Crowdfunding Portal Withdrawal of Registration form; and
<*>133.17, which would adopt by reference the Crowdfunding
Exemption Notice form. The portal forms are tailored to the
limited activities performed by a portal and eliminate the need
for a portal to use the more comprehensive dealer forms.
<*>133.15. Texas Crowdfunding Portal Registration. This
form is available from the State Securities Board, P.O. Box
13167, Austin, Texas 78711-3167 and at http://www.ssb.state.tx.us.
<*>133.16. Texas Crowdfunding Portal Withdrawal of
Registration. This form is available from the State Securities
Board, P.O. Box 13167, Austin, Texas 78711-3167 and at
http://www.ssb.state.tx.us.
<*>133.17. Crowdfunding Exemption Notice. This form is
available from the State Securities Board, P.O. Box 13167,
Austin, Texas 78711-3167 and at http://www.ssb.state.tx.us.

SeedInvest Seeks Equity Crowdfunding Accredited Investors to Raise $3 Million in Series A Funding

14 Apr

Equity Investment Offers Investors an Opportunity to Get In on the Ground Floor of One of America’s Leading Equity Crowdfunding Investment Sites before the SEC Approves 240 Million New Investors to Join the Equity Investment Pool when the Final Title III Guidelines are Approved by the SEC sometime in 2014

By Robert Hoskins

New York, NYSeedInvest announced that it is seeking accredited investors to fund a $3 million Series A round on its own equity crowdfunding investment platform in the United States. The first $2 million has already been committed by prominent venture capital firms, including: Scout Ventures, Great Oaks Venture Capital, Avenue A Ventures, Krillion Ventures and Archer Gray.

SeedInvest Launches $3 Million Series A Round on Its Own Platform

SeedInvest.com Launches $3 Million Series A Round on Its Own Platform

SeedInvest is excited to open up the remainder of its round to individual accredited investors who would like to invest alongside the aforementioned venture capital firms. This announcement marks the first time that a US-based equity crowdfunding platform has publicly raised capital for itself. Interested investors should go to www.seedinvest.com/seedinvest to learn more about the company and the investment opportunity.

The $3 million raise will enable SeedInvest to grow its team to support its rapidly growing investor base. In conjunction with the raise, Bradley Harrison, Managing Partner at Scout Ventures, will join SeedInvest’s Board of Directors.

“SeedInvest has both the right team and vision to capitalize on one of the largest shifts of economic power to retail investors that we have experienced in our lifetime,” said Harrison. “Their results clearly prove that they are addressing a huge problem for both investors and entrepreneurs.”

Since its launch in February 2013, SeedInvest has rapidly expanded its investment base, attracting thousands of investors who are looking to collectively invest more than $125 million in startups. In addition to establishing a thriving marketplace, SeedInvest is getting deals done. The company processed more than 60 investments worth over $2 million in March alone, and grew its transaction volume by 350% in the first quarter of this year versus the previous quarter.

Unlike other platforms that keep 20% of returns, SeedInvest is completely free for investors. This has enabled SeedInvest to attract larger investors who made investments as large as $550,000 last month. As a result, SeedInvest has proven that it can deliver capital quickly and bring high-value-add investors to the table. During March, SeedInvest helped Vengo, a high-tech digital vending machine, raise $720,000 online from a combination of venture funds, family offices and individual angel investors.

“Although we have had a tremendous start to 2014, we can’t wait for the 2nd half of this year,” said Ryan Feit, CEO and co-Founder SeedInvest. “As soon as the final portion of the JOBS Act kicks-in, we will open SeedInvest to 240 million Americans who will be able to invest in startup companies for the very first time.”

# # #

 

Will Crowdfunding Recommendations Recently Posted to the SEC’s Website Be Approved at April 10th Meeting?

8 Apr

by Ronald Orol, The Deal Pipeline

Washington, DC – An influential advisory committee to the Securities and Exchange Commission is set to vote Thursday on a package of recommended protections for investors who put money in private “crowdfunding” portals. Creation of the portals was a key provision in the Jumpstart Our Business Startups Act, which was enacted to ease restrictions on entrepreneurs and lower their costs of raising capital.

Will SEC Approval New Crowdfunding Regulations on April 10, 2014?

Ronald Orol, The Deal Pipeline

At issue is a 295-question crowdfunding proposal introduced by the SEC in October. Recommendations made by the Investor Advisory Committee, which is made up of outside investors, academics and consumer advocates, are often added to SEC rules.

People familiar with the recommendations, which were posted recently to the SEC’s website, contend they will be approved by the full investor advisory panel at Thursday’s meeting.

One key recommendation would allow investors to allocate only 10% of their yearly income or assets only if they have both an annual income of $100,000 and a net worth of the same amount.

That’s more restrictive than the SEC’s current proposal, which allows investors to contribute up to 10% of their yearly income or assets to these startup companies if they have a net worth of $100,000 or they earn $100,000 annually. The Deal first reported in March, citing people familiar with the situation, that the panel was set to make this recommendation.

Read more…

SEC Chairman Mary Jo White Speech on Evolving with New Financial Challenges in 2014

3 Feb

A Roadmap to New Market Technology, Financial Products, Capital Formation  and Vigorous Enforcement in 2014

41st Annual Securities Regulation Institute Coronado, Calif

February 3, 2014 – For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.

The SEC’s 2014 Mission:

But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.

When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.

It is because we operate in this vast, fast, and ever-evolving securities market that the Commission, as the regulator of that market, must constantly adapt in order to continue to be effective.

With that in mind, I thought I would speak this morning about some of the transformative changes at the SEC in 2014 and, while doing that, also preview a few of the specific rulemakings and other initiatives that I expect to be on our 2014 agenda.

I. Evolving with Market Technology

While there have been many significant changes since the SEC’s inception, few have had as much impact on our markets as the advances in technology. The manual trades on the exchange floor of the 1930s have given way to trading that is high-tech, high-speed, and widely dispersed among many different venues, some of which did not even exist when I last gave this address, but which now occupy significant parts of the market landscape.

And that landscape changes and evolves further every day.

It is not only our job to keep pace with this rapidly changing environment, but, where possible, also to harness and leverage advances in technology to better carry out our mission.

And, despite significant resource challenges, we are doing precisely that across the agency. Let me give you a few examples.

NEAT

Our Quantitative Analytics Unit in our National Exam Program has, for example, developed a revolutionary new instrument called “NEAT,” which stands for “National Exam Analytics Tool.”

With NEAT, our examiners are able to access and systematically analyze massive amounts of trading data from firms in a fraction of the time it has taken in years past. In one recent exam, our exam team used NEAT to analyze in 36 hours literally 17 million transactions executed by one investment adviser.

Among its many uses, NEAT can search for evidence of potential insider trading by comparing a database of significant corporate activity like mergers against the companies in which a registrant is trading and analyze how the registrant traded at the time of those significant events. NEAT can review all the securities the registrant traded and quickly identify the trading patterns of the registrant for suspicious activity.

In 2014, our examiners will be using the NEAT analytics to identify signs of not only possible insider trading, but also front running, window dressing, improper allocations of investment opportunities, and other kinds of misconduct.

MIDAS

This past year, we also brought on-line another transformative tool that enables us to collect and sift through massive amounts of trading data across markets instantaneously, an exercise that once took the staff weeks or months. We call this technology MIDAS – the Market Information Data Analytics System.

Every day, MIDAS collects one billion records of trading data, time-stamped to the microsecond. Previously, only sophisticated market participants had access to this type and amount of trading data and even fewer were able to process it. At the SEC of 2014, we are aggregating this data and presenting it on our website along with a wide range of analyses. We have made these analyses readily accessible on your computer or even your tablet, with data available in clear, easy-to-read charts and graphs.

MIDAS is already revealing some important, data-based realities that may resolve some of the speculations about behavior in today’s market structure. Just earlier this month, for example, the SEC staff published an analysis showing that for the most part the advent of public transparency for “odd lot” trades does not seem to correspond with a decline in such trades. The staff noted that this result suggests that a lack of transparency may not have been one of the drivers for breaking trades into odd lots, which some observers have suggested is a technique to hide trading activity.

In the coming weeks, we are expecting to post further staff analysis of off-exchange trading, a review of research on high-frequency trading, and a data series on depth-of-book liquidity. I encourage you, after my remarks, to take a look at all of this – right on sec.gov. This is not your father’s SEC – or your mother’s or even your older brother or sister’s. In this rapidly changing environment, we must stay on top of advances in technology. NEAT and MIDAS are important tools that will help us keep pace with evolving technology.

Operational Integrity

Our approach to technology in 2014, however, is not limited to building systems like these for us to keep pace with the evolving technology of the markets. We are also focused on ensuring that the technology used by exchanges and other market participants is deployed and used responsibly in a way that reduces the risk of market disruptions that can harm investors and undermine confidence in the integrity of our markets.

Most recently, following the interruption of trading in Nasdaq-listed securities last August, I met with the leaders of the equities and options exchanges. At my urging, they pledged to work toward enhancing the integrity of market systems, including the critical market infrastructures that can prove to be “single points of failure,” such as public feeds of quotes and trades.

They have since been working hard to develop and implement such measures, and I expect more to be done to address these vulnerabilities in 2014.

In addition, I anticipate that the Commission’s 2014 rulemaking agenda will include consideration of the adoption of Regulation SCI – which stands for Systems Compliance and Integrity. As some of you know, Regulation SCI would put in place new, stricter requirements for the use of technology by exchanges, large alternative trading systems, clearing agencies, and securities information processors. Regulation SCI can be – and should be – the market-side counterpart to the intermediary-focused Market Access Rule adopted by the Commission in 2010 to better regulate how broker-dealers manage the technological and other risks associated with direct access to markets.

II. Evolving with New Financial Products

It is not just technology that has changed over the life of the agency. So too have the financial products that investors, businesses, and other market participants use.

OTC Derivatives

In 1990, for instance, few people would have heard of a credit default swap or any of a number of the other products that make up today’s over-the-counter derivatives market. Yet two decades later, such derivatives comprise a multi-trillion dollar market.

The Dodd-Frank Act directed the SEC – for security-based swaps – and the CFTC – for all other swaps – to create an entirely new regulatory regime for this massive market. Once this regime is fully in place, many over-the-counter derivatives will be traded and cleared on venues accessible by a wide range of market participants, with trade data made readily available to regulators and disseminated to the public. What was once an opaque, bilateral market will largely become a transparent, centrally cleared market.

The Commission has proposed substantially all of the rules required to implement this new regulatory framework. With our proposal for the cross-border application of this framework last year, I expect the Commission in 2014 to move forward with finalizing and implementing these rules.

Money Market Funds

Even when a product is not as new as an over-the-counter derivative, the use of the product may reveal previously unanticipated risks that suggest an evolution in our regulatory approach is warranted. The recent financial crisis provided an unwelcome laboratory for a number of these products.

Money market funds, for example, have for decades been an important part of the financial marketplace. As we saw in the financial crisis, however, they can be exposed to substantially heightened redemptions if investors believe that a fund is about to lose value. The resulting instability in their value can harm investors as well as the entities that turn to money market funds for financing.

In 2010, the SEC took a first step to address this heightened redemption risk by making the funds more resilient. The rule amendments adopted by the Commission in 2010 were designed to reduce the interest rate, credit, and liquidity risks of money market fund portfolios. The Commission said at the time that it would continue to consider whether further, more fundamental changes to money market fund regulation is warranted.

Currently, the Commission is considering two significant proposals for additional reform that were put out for comment last June. One is a floating NAV for prime institutional money market funds – the type of fund that experienced problems during the financial crisis. The other proposal would require money market funds under certain circumstances to impose a liquidity fee and permit the imposition of redemption gates. This proposal is designed to stop a “run” and limit the resulting instability. These proposals could be adopted alone or together.

We have received hundreds of letters on the proposals with a wide range of differing views that we are reviewing closely. Completing these reforms with a final rule is a critical priority for the Commission in the relatively near term of 2014.

Securitization

The financial crisis also revealed how another product – asset-backed securities – could create undue risks to market integrity and investors. Shortly after the financial crisis, the Commission proposed a new set of disclosure rules for asset-backed securities, which have evolved with the Dodd-Frank Act. Finalizing these new disclosure rules remains an important priority for the Commission in 2014.

A related effort is the rules we are required to adopt jointly with several other agencies governing the retention of a specified amount risk by the sponsor of an asset-backed security. We re-proposed those rules late last year, and finalizing them will be a priority for 2014.

III. Evolving with New Paths to Capital Formation

Just as we have seen market technology and products evolve over time, we also have seen massive change in the ease and speed with which information and capital flows. This, in turn, has led companies, investors, Congress, the SEC and others to reconsider how companies can seek capital and communicate with potential investors. Indeed, we are at the start of what promises to be a period of transformative change in capital formation.

In 2013, according to our estimates, capital raised in public offerings totaled $1.3 trillion, as compared to $1.6 trillion raised in offerings not registered with the SEC, with over 65% raised in new and ongoing Rule 506 offerings. So the private offering markets already rival the public markets in terms of capital raised.

And, in 2012, Congress passed the JOBS Act, directing the Commission to implement rules that will have a significant impact on the private offering markets. I know you will be hearing a fair amount about this subject on your panels today, so let me provide just a brief overview of what the SEC will be working on in this space in 2014.

In July, the Commission adopted rules implementing the JOBS Act mandate to lift the ban on general solicitation, and the rules became effective on September 23, 2013. Although existing Rule 506 continues to be a popular method for capital raising, issuers are taking advantage of the new rule. Preliminary information collected by our Division of Economic and Risk Analysis shows that through December 31, approximately 500 offerings were conducted, raising approximately $5.8 billion.

Then, in October and December of last year, the Commission proposed rules to implement the JOBS Act mandates with respect to crowdfunding and Regulation A. While the final framework of these two exemptions is yet to be determined by the Commission, if the enthusiasm for them is any indication, I expect strong interest in raising capital through these mechanisms.

Together, these changes should provide new and expanded ways for companies of all sizes, but particularly smaller companies, to raise capital. The final implementation of crowdfunding and an updated Regulation A is an important priority in 2014, and I expect that the Commission, after thorough consideration of all comments, will move expeditiously to finalize these rules.

These rule changes for the private offering market are just the start of the Commission’s efforts. For the changes demand that the Commission stay focused on the ongoing implementation of the exemptions, what market practices develop, how much capital is being raised, how investors are impacted, and whether fraud or other misconduct is occurring in these markets.

So, staff from across the agency is also set to monitor the developments in the markets following all of these changes. An agency-wide working group has been formed to monitor offering practices and other developments in the Rule 506 market. I have also directed the staff to form similar working groups for both crowdfunding and the new Regulation A.

One key step in the effort to improve our monitoring of Rule 506 offerings will be the adoption of final rules – also proposed in July – relating to amendments to Regulation D, Form D and Rule 156. I know that you have a session later today during which you will discuss these proposed amendments, and I know, from the comment file, what many of you think. We are considering those comments very carefully. Advancing these important rules, after due consideration of the comments we have received, is another important priority for me in 2014.

Disclosure Reform

As we move to complete our rulemaking in the private offering area, it is important for the SEC not to lose focus on the public markets.

I recently spoke about some of my ideas about disclosure reform and in December the staff issued a report mandated by the JOBS Act that gives an overview of Regulation S-K and the staff’s preliminary recommendations as to how to update our disclosure rules. I have asked the staff to begin an active review of our disclosure rules.

We can all probably identify particular disclosure requirements that we might eliminate or modify, but that is not the kind of review and reform I am primarily focused on – and it certainly is not the kind of thoughtful and comprehensive review that I think our disclosure rules demand. I believe we should rethink not only the type of information we ask companies to disclose, but also how that information is presented, where and how that information is disclosed, and how we can take advantage of technology to facilitate investors’ access to information and make it more meaningful to them.

I have asked the staff to seek input from issuers, investors, and other market participants in 2014 as part of this effort, and I encourage all of you to share your views and ideas. The ultimate objective is for the Commission to improve the disclosure regime for the benefit of both companies and investors.

IV. Vigorous Enforcement in 2014

The agency’s evolution in response to a rapidly changing market is not confined to rulemaking or market oversight. We have also found it necessary to adapt our policies, priorities, and approach with respect to enforcement as well. And no discussion of the SEC in 2014 would be complete without my touching on some of these changes and giving you some idea of what to expect this year. The coming year promises to be an incredibly active year in enforcement, as we continue to vigorously pursue wrongdoers and bring enforcement actions across the entire industry spectrum.

Admissions

As you know, for many years, the SEC, like virtually every other civil law enforcement agency, typically did not require entities or individuals to admit wrongdoing in order to enter into a settlement. This no admit/no deny settlement protocol makes a great deal of sense and has served the public interest very well. More and quicker settlements generally mean that investors receive as much (and sometimes more) compensation than they would after a successful trial – and without the litigation risk or the inevitable delay that comes with every trial. Settlements also can achieve more certain and swifter civil penalties, and bars of wrongdoers from the industry or from serving as officers or directors of public companies – all very important remedies for deterrence and the public interest.

So, why modify the no admit/no deny protocol at all? It is not a new question and one that many of you continue to ask. Even before my arrival as Chair, the Enforcement Division decided to require admissions where parallel criminal or other regulatory cases were brought with admissions. Why? Because admissions can achieve a greater measure of public accountability, which can be important to the public’s confidence in the strength and credibility of law enforcement and the safety of our markets. It is not surprising that there has also been renewed public and media focus on the accountability that comes with admissions following the financial crisis, where so many lost so much.

And it should be no surprise that my views on admissions were formed long before recent events and were shaped by my time as United States Attorney. In the criminal realm, guilty pleas are accompanied by admissions of guilt, which eliminate any doubt about the conduct of the defendant and provide additional accountability for the crime.

As United States Attorney, I made the decision that companies should, in certain circumstances, admit their wrongdoing, even if they were not criminally charged, but where there was a special need for public accountability and acceptance of responsibility. That is why, when I negotiated the first deferred prosecution for a company, back in 1994, I required an admission of wrongdoing, and I brought that mindset to the SEC when I became Chair last April.

After studying and discussing the issue with the staff and my fellow Commissioners, I decided to modify the SEC’s protocol to demand admissions in an expanded category of settlements. That change occurred in June and you have begun to see it play out in a number of cases. When we first announced the change in approach, we outlined broad parameters of the types of cases in which we will consider requiring admissions as part of any settlement. And now, we have a number of cases with admissions that illuminate those categories.

So, for example, we have said we will consider admissions in cases involving egregious conduct, where large numbers of investors were harmed, where the markets or investors were placed at significant risk, where the wrongdoer poses a particular future threat to investors or the markets, or where the defendant engaged in unlawful obstruction of the Commission’s processes. Just last month, we required three brokerage subsidiaries to admit to a scheme in which they repeatedly deceived their customers about their compensation on securities transactions – and in some cases even provided falsified trading data to their customers in an effort to avoid detection. The conduct was egregious and harmed many investors, thereby justifying admissions.

Similarly, we demanded that a bank admit that its internal controls were deficient in failing to detect and prevent, and then disclose to its board and investors, massive losses by some of its traders, thereby putting millions of shareholders at risk and resulting in inaccurate public filings.

To be sure there was no ambiguity about the misconduct of a defendant who was continuing to deal with investors, we required a hedge fund adviser to not only agree to a bar from the securities industry for five years, but to also admit to misuse of more than one hundred million dollars of fund assets in order to pay his personal taxes through a personal loan that was not timely disclosed to investors.

As we go forward in 2014, you will see more cases involving admissions. When and how we decide to require admissions will continue to evolve and be subject to further articulation in the cases we bring and as we discuss it publicly.

Financial Fraud

This year will likely see us complete our docket of major investigations stemming from the financial crisis. As we do, our focus and resources will naturally turn to other priorities. This shift has already begun.

Last fall, the Enforcement Division formed a Financial Reporting and Audit Task Force. This dedicated group has very talented accountants and attorneys who will broaden and thereby improve the way we look at financial reporting misconduct.

The Task Force is pursuing a number of goals, including building a deep understanding of the state of financial reporting fraud – not just why it happens, because there is plenty of learning on that question, but how it happens and in what specific areas.

As you would expect, we look closely at the auditors in every financial reporting case, but we are also closely focusing on senior executives for possible misconduct warranting charges. The message is that critical accounting issues are the responsibility of all those involved in the preparation and review of financial disclosures.

Market Integrity

As I have discussed, technology has worked a fundamental shift in the way securities are priced and traded – a shift that has only accelerated in the past several years. In the last two years, we have tried to send a strong enforcement message to the exchanges and alternative trading systems that play critical roles in securities market transactions that they must operate fairly, within the rules and with a close eye on their responsibilities to safeguard their technology. Cases have been brought against an exchange that inadequately tested its IPO systems and was therefore unable to handle a highly anticipated IPO and then did not follow its own rules in the aftermath; against a different exchange for compliance failures that gave certain customers an improper head start on trading information; and against a dark pool for failing to protect the confidential trading information of its subscribers. When technology presents new opportunities for innovation, changes must be deployed responsibly, after careful testing, and within the rules and parameters of the trading environment. Market structure integrity actions will remain a priority in 2014.

As you will hear when Andrew Ceresney, our Director of Enforcement speaks to you over the coming days, there are many other enforcement priorities for 2014 that you should be aware of. These include, but are by no means limited to, FCPA, insider trading, and microcap fraud. It will, in short, be a very busy year in enforcement.

Conclusion

I hope I have given you a sense of some of the things we will be doing in 2014 and a flavor for how dramatically and vibrantly things have changed at the SEC as our world and markets have changed. There is more, of course, we will be doing and considering in the coming year, both on our own initiative and as required by the Dodd-Frank and JOBS Acts – equity market structure, duties of brokers-dealers and investment advisers, the management and responsibilities of clearing agencies and credit rating agencies, Dodd-Frank executive compensation rulemaking, target date funds, systemic risk issues, broker-dealer financial responsibility, and more.

It is a constant, but always exciting, challenge to keep pace and indeed to accurately see around the next corner for the newest market developments or another innovative variant of, or new venue for, fraud. I now am privileged to have an up-close and personal role in all of this. And it is my strong conviction that the women and men of the SEC are, as has always been true, more than up to these challenges. As Alan Levenson said in January 2003, almost eleven years to the day when he spoke about the strength of the SEC: “It was the creativity of the staff… [they] had a drive and a genuine interest in protecting investors and the public interest….” The challenges and tools change, but creativity, drive, and commitment to the mission continue unchanged at the SEC in 2014. Alan Levenson, I think, would be very proud.

# # #

Top 10 Crowdfunding Industry Predictions for 2014

30 Dec

Crowdfunding PR, Social Media and Marketing’s Top 10  Technology Trends and Business Developments that Might Develop During 2014

Top 10 Crowdfunding Predictions for 2014

Top 10 Crowdfunding Predictions for 2014

By Robert Hoskins

  1. Utilizing Social Graphs – Implementing social graphing application programming interfaces (APIs) for crowdfunding platforms will make it easy to see friends of friends who are investing in crowdfunding campaigns due to popular social media networks such as Facebook, Google+, Linkedin, Meetup, Pinterest, Twitter, YouTube and others.  Data mining and big data services will become very sophisticated services for the crowdfunding industry.  Once these services get started it will be very hard for fraudulent companies to succeed because they will vetted by millions of investors working together to form a policing crowd.
  2. Predicting the Success of Crowdfunding Campaigns – Investment professionals will develop crowdfunding campaign evaluation systems that break down campaigns into easy to evaluate modules similar to the way the crowd of fantasy football gurus rate individual players based on their performance.  Utilizing a crowd to rate crowdfunding deals by various categories will make it easy and simple for large numbers of non-investment professionals to vet deals together.
  3. Growing an Industry of Crowdfunding Service Providers (CSPs) – In order to help 229 million new investors vet deals together, the crowdfunding industry is going to spawn a tremendous amount of new CSPs that will help novice and accredited investors examine equity investment deals to determine potential success or failure. To date our database includes CSPs that provide white label crowdfunding platforms, payment processing, SEC compliance, digital signatures, legal documents, intellectual property (IP), valuation calculators, investment scoring, due diligence, social trust, business planning, marketing, PR and social media and marketing companies.
  4. Rising Stars of Crowdfunding Content – The demand for crowdfunding TV programs will grow exponentially to provide content similar to the Shark Tank, but without the bite.  Whereas reality TV shows currently feature drama that bashes unprepared entrepreneurs, the American public will be drawn to programming that educates startups on how to launch successful crowdfunding campaigns, build vertical business-to-business crowdfunding platforms as well as how to vet and invest in Crowdfunding equity investment opportunities.
  5. Creating Economic Development Centers – For the past 10 years banks have denied small businesses access to startup capital. In a town of 50,000 families, equity crowdfunding will allow each family to invest up to $2,000 per year into local businesses the community needs and wants.  This will create an investment pool of $100 million dollars each year that will not only create lots of jobs, but allow everyone in the community to encourage, steer and participate in the prosperity of the community.  Investing locally as a crowd will make it easy to vet and assess cooperative crowdfunding deals for the social good of the community.
  6. Transforming Rural America into Corporations – Access to large pools of investment capital will allow crowdfunding to turn kitchen tables everywhere into the board rooms of tomorrow.  Outside of the top 300 largest cities in the United States, rural towns and cities will suddenly have access millions of micro venture capitalists and hobby investors. Local investors will be able to crowdfund movie theaters, bowling alleys, restaurants, well-known franchises, and other types of in-demand businesses that will become economic development engines.
  7. Increasing Success via Target Marketing – Do crowdfunding platforms like Kickstarter and Indiegogo stand a chance against large media companies such as Condé Nast, Hearst, IDC, Meredith, Reeds, Time Inc., Ziff Davis, etc.?  Right now the practice of target marketing via crowdfunding platforms is non-existent.  Well-established publishing and ecommerce centers are perfectly positioned to launch business-to-business crowdfunding platforms that will make fundraising easier for crowdfunding campaign managers that want to launch highly targeted advertising, email, PR and social media campaigns to make their crowdfunding campaigns very successful.  This will significantly improve the success rate of traditional crowdfunding platforms and allow them to outperform the current market leaders Kickstarter and Indiegogo.
  8. Reducing Risk for Venture Capitalists – Hobby investing will become a national past time and VCs will not have to risk giving seed money, thus the quality of their deal flow should improve dramatically. Instead of risking several million dollars to provide seed startup capital, VCs will be able to sit back and wait to see what products/services the crowd is willing to support with their hard-earned dollars, and as a result they should be able to use crowdfunding as a very good measurement of future marketplace demand.
  9. Growing a Crop of Hobby Investors – When Title III crowdfunding becomes legal 97% more Americans will be able to invest up to $2,000 per year in equity crowdfunding opportunities.  If every family in the U.S. investments just 1% of their annual income in local crowdfunding deals it will provide over $300 billion per year to help small businesses get off the ground.  It will dwarf by a significant magnitude the environment that was prevalent during 1990s when venture capital extremely easy raise by simply drawing up a business plan on a napkin. Shopping crowdfunding campaigns will become a national past time.
  10. Legalizing Title III Equity Crowdfunding – Title III Crowdfunding should become legal by June 2014.  Not a new topic, but one worth revisiting on a state-by-state basis as each state passes their own local laws regarding crowdfunding due to the fact that the SEC has been very slow in adopting the mandates that were passed by the U.S. Congress and the President Obama in April of 2012 when the JOBS Act was signed into law.  Crowdfunding is so important that Georgia, Kansas, Michigan and North Carolina have bypassed the SEC and implemented their own crowdfunding legislation.
%d bloggers like this: