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Tag Archives: U.S. Securities and Exchange Commission

SEC Details Rules for Title III Crowdfunding Investors and Crowdfunding Investment Sites

31 Oct

The SEC’s final Title III Crowdfunding Rule (Regulation Crowdfunding) will enable individuals to purchase securities in crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions

Chair Mary Jo White Gives an Overview of Title III Crowdfunding Rules

Chair Mary Jo White Gives an Overview of Title III Crowdfunding Rules

By Robert Hoskins

SEC’s Title III of the JOBS Act 

On Friday, October 30, 2015, the SEC passed the final Title III Regulation Crowdfunding Rule that will allow the offer and sale of securities through crowdfunding.  The new rules will give small businesses an additional avenue to raise capital and provide investors with important protections.  If adopted, this would complete the Commission’s major rulemaking mandated under the JOBS Act.

Title III Crowdfunding Investor Rules

The recommended rules would, among other things, enable individuals to purchase securities in crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions.  More specifically, the recommended rules would:

  • Permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
  • Permit individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
    • If either their annual income or net worth is less than $100,000, than the greater of:
      • $2,000 or
      • 5 percent of the lesser of their annual income or net worth.
    • If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Under the recommended rules, certain companies would not be eligible to use the exemption.  Ineligible companies would include non-U.S. companies, Exchange Act reporting companies, certain investment companies, companies that are subject to disqualification under Regulation Crowdfunding, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

Securities purchased in a crowdfunding transaction generally could not be resold for one year.  Holders of these securities would not count toward the threshold that requires a company to register its securities under Exchange Act Section 12(g) if the company is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year.

In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a funding portal.

Title III Crowdfunding Company Disclosures 

Companies that rely on the recommended rules to conduct a crowdfunding offering must file certain information with the Commission and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose:

  • The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
  • A discussion of the company’s financial condition;
  • Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.  A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;
  • A description of the business and the use of proceeds from the offering;
  • Information about officers and directors as well as owners of 20 percent or more of the company; and
  • Certain related-party transactions.

In addition, companies relying on the crowdfunding exemption would be required to file an annual report with the Commission and provide it to investors.

Title III Crowdfunding Rules for Portals

A funding portal would be required to register with the Commission on new Form Funding Portal, and become a member of a national securities association (currently, FINRA).  A company relying on the rules would be required to conduct its offering exclusively through one intermediary platform at a time.

The recommended rules would require intermediaries to, among other things:

  • Provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered and information a company must provide to investors, resale restrictions, and investment limits;
  • Take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with Regulation Crowdfunding and that the company has established means to keep accurate records of securities holders;
  • Make information that a company is required to disclose available to the public on its platform throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;
  • Provide communication channels to permit discussions about offerings on the platform;
  • Provide disclosure to investors about the compensation the intermediary receives;
  • Accept an investment commitment from an investor only after that investor has opened an account;
  • Have a reasonable basis for believing an investor complies with the investment limitations;
  • Provide investors notices once they have made investment commitments and confirmations at or before completion of a transaction;
  • Comply with maintenance and transmission of funds requirements; and
  • Comply with completion, cancellation and reconfirmation of offerings requirements.

The rules also would prohibit intermediaries from engaging in certain activities, such as:

  • Providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;
  • Having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and
  • Compensating any person for providing the intermediary with personally identifiable information of any investor or potential investor.

Regulation Crowdfunding would contain certain rules that are specific to registered funding portals consistent with their more limited activities than that of a registered broker-dealer.  The rules would prohibit funding portals from, among other things: offering investment advice or making recommendations; soliciting purchases, sales or offers to buy securities; compensating promoters and other persons for solicitations or based on the sale of securities; and holding, possessing, or handling investor funds or securities.

The rules would provide a safe harbor under which funding portals could engage in certain activities consistent with these restrictions.  The rules also would require funding portals to maintain certain books and records related to their transactions and business.

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SEC’s Title III Equity Crowdfunding for Non-Accredited Investors

28 Oct
SEC to Approve Final Title III Rules for Equity Crowdfunding for Non-Accredited Investors

SEC to Approve Final Title III Rules for Equity Crowdfunding for Non-Accredited Investors

SEC’s Crowdfunding Title III Open Meeting:

The Securities and Exchange Commission will hold an Open Meeting on Friday, October 30, 2015 at 10:00 a.m., in the Auditorium, Room L-002.

SEC Title III Open Meeting Discussion Points:

Commission Stein, as duty officer, voted to consider the items listed for the Open Meeting in open session, and determined that Commission business required consideration earlier than one week from today.  No earlier notice of this Meeting was practicable.

View the Archived SEC’s Title III Crowdfunding Open Meeting Video:

https://www.sec.gov/news/openmeetings.shtml

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BlazeFund Launches New Innovative Equity Crowdfunding Platform

20 Aug

Entrepreneurs Gain Alternative Online Equity Crowd Funding Platform From BlazeFund For Securing Growth Capital, Investors Gain Access To Uncorrelated Asset Class

By Robert Hoskins

BlazeFund, Inc. launched a new equity-based crowdfunding platform for accredited investors to find a portfolio of potential investment deals through an online marketplace. The user-friendly platform offers a secure environment and ecosystem that simultaneously connects individual and strategic institutional investors with start-up entrepreneurs and growing private companies.

 Entrepreneurs Gain Alternative Online Equity Crowd Funding Platform From BlazeFund For Securing Growth Capital, Investors Gain Access To Uncorrelated Asset Class


Entrepreneurs Gain Alternative Online Equity Crowd Funding Platform From BlazeFund For Securing Growth Capital, Investors Gain Access To Uncorrelated Asset Class

BlazeFund’s platform focuses on listing ventures in technology, business services and healthcare/life sciences. These companies are beyond the seed stage and have proven business models, products and markets. Most of the venture listings will target a minimum average capital raise of $0.5M.

BlazeFund is the first equity crowd funding portal with multiple international offices located in developing economic regions. As a result, start-ups and growing private companies listed on BlazeFund receive greater exposure for their listings. BlazeFund also assists companies interested in potential cross-border joint ventures.

Aaron Sanders, founder and CEO of BlazeFund, believes that the portal delivers an added value to each of the three groups – entrepreneurs, institutions and investors that are connected to the platform. “Our mission is to help extraordinary entrepreneurs find the capital they need to grow their businesses from our private network of strategic investors. The end goal is to make the overall process more efficient and transparent for both investors and companies,” states Sanders.

BlazeFund’s portal has patent-pending features that reduce investor risk by:

  • Providing a two-step investment mechanism that splits the investment exposure of the crowd and links the release of raised capital to a company achieving predetermined milestones.
  • Facilitating private-equity/venture-capital style due diligence by the crowd/analysts, enabling potential investors to access independent reviews.

With equity crowd funding growing rapidly and market size projections of $6.3B over the next five years, Sanders believes that, “Investors can easily diversify a small percentage of their portfolios through this new investment class which has the potential to produce significant returns — perhaps multiples of their original investment.”

Mr. Sanders has a BS Chem. E. (Univ. of Wisconsin, Madison) and an MBA (Univ. of Rochester). His expertise is in strategy, operations, business process, CRM and ecommerce solutions. Sanders has been granted a number of US patents and is co-inventor of BlazeFund’s patent-pending innovations.

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Front Page PR Offers Broker Dealers General Solicitation Campaigns to Market the Oncoming Wave of Equity Crowdfunding Investment Opportunities to the Next Generation of U.S. Accredited Investors

15 Jul

SEC legalizes Crowdfunding marketing, PR and social media campaigns to solicit investments from Reg. D accredited investors, which include, in general, people with a net worth (excluding their residence) of $1 million, income of $200,000 a year (or $300,000 with their spouse), officers and directors of the issuer and various institutions that have more than $5 million in assets

By Robert Hoskins, Front Page Public Relations

Front Page PR announced new turnkey Crowdfunding marketing programs for FINRA-registered broker dealers that want to begin planning advertising, marketing, media relations, PR and social media campaigns to reach a target audience of accredited investors that have remained allusive for the past 30 years due to securities laws.  On July 10, 2013, the Securities Exchange Commission (SEC) voted to lift rules that strictly prohibited the use of mass marketing strategies to promote investment opportunities to potential investors.

Beginning September 2013, leading broker dealers that want to make a big push into one of the most promising financial opportunities in the last eighty years can now begin working with Front Page PR’s team of marketing experts to start planning targeted marketing campaigns to reach this lucrative new audience of prospective accredited investors.


July 10, 2013 SEC Guidelines passed for Crowdfunding and Title II of the 2012 JOBS Act:


“Aggressive broker dealers are already partnering with popular equity crowdfunding sites such as Circleup.com and MicroVentures.com in order to begin marketing to investment early adopters who are joining popular crowdfunding sites in droves,” said Robert Hoskins, Front Page PR’s Director of Media Relations.  “Adding to the crowdfunding marketing opportunity is the pent-up demand that has been building over the past five years as entrepreneurs and small businesses that have been rejected over and over when seeking traditional bank and small business loans.”

“On the flip side of the crowdfunding market opportunity are millions of qualified investors in the U.S who meet the official SEC guidelines to become accredited investors, which can participate in new equity crowdfunding opportunities, but are unaware of their unique credentials,” Hoskins continued.  “These potential investors have large sums of money sitting in their bank accounts, savings plans and 401k retirement accounts because they simply cannot find attractive deals that will provide a decent return on their investment.”

On September 2, 2013, broker dealers will be able to put together marketing campaigns to educate new investors on the potential to invest in lucrative crowdfunding investment opportunities as well as the best strategies on how to find and evaluate good deals that have serious potential as well as time proven strategies on how to identify red flags and eliminate deals that do not.

Front Page PR encourages broker dealers and equity crowdfunding platforms to contact the firm to begin planning marketing campaigns prior to September 2, 2013, the date when the race begins to build new relationships with millions of new accredited investors via mass marketing communication strategies.

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Mary Jo White, SEC Approves JOBS Act Requirement to Lift General Solicitation Ban on Crowdfunding for Accredited Investors

10 Jul

SEC Eliminates the Prohibition on General Solicitation and General Advertising in Certain Crowdfunding Fundraising Offerings

By Robert Hoskins

The Securities and Exchange Commission today adopted a new rule to implement a JOBS Act requirement to lift the ban on general solicitation or general advertising for certain private securities offerings.

SEC Approves JOBS Act Requirement to Lift General Solicitation Ban

SEC Approves JOBS Act Requirement to Lift General Solicitation Ban

New SEC Rulemaking on Crowdfunding Guidelines for General Solicitation for Accredited Investors

Rule 506

The final rule approved today makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities provided that:

  • The issuer takes reasonable steps to verify that the investors are accredited investors.
  • All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.

Under existing Rule 501, a person qualifies as an accredited investor if he or she has either:

  • An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.
  • An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.

The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser and the transaction. Nevertheless, in response to commenters’ requests, the final rule provides a non-exclusive list of methods that issuers may use to satisfy the verification requirement for individual investors.

The methods described in the final rule include the following:

  • Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.
  • Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser’s accredited status.

The existing provisions of Rule 506 as a separate exemption are not affected by the final rule. Issuers conducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren’t subject to the new verification rule.

Rule 144A

Under the final rule, securities sold pursuant to Rule 144A can be offered to persons other than QIBs, including by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person acting on behalf of the seller reasonably believe to be QIBs.

Form D

The final rule amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised form adds a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising.

What’s Next

The rule amendments become effective 60 days after publication in the Federal Register.

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Small Business & Entrepreneurship Council Laments the SEC’s Blockade of Crowdfunding Capital Access Opportunities

8 Apr

By Robert Hoskins

A leading organization that represents entrepreneurs and small business owners expressed frustration with the dawdling pace of Jumpstart Our Business Start Up Act  (JOBS Act) implementation by the Securities and Exchange Commission (SEC).  The JOBS Act was signed by President Barack Obama one year ago today.  The SEC has not issued one rule to implement this important law that will improve capital access for entrepreneurs. Small Business & Entrepreneurship Council (SBE Council) President & CEO Karen Kerrigan , who was at the bill signing ceremony and whose group helped to spark the legislation and lead it to passage, said the SEC’s performance in missing key deadlines is inexcusable.

Small Business & Entrrepreneurship Council Laments SEC's Blockade to Crowdfunding Capital Access

Small Business & Entrrepreneurship Council Laments SEC’s Blockade to Crowdfunding Capital Access

“The SEC is undermining this important capital formation initiative that was supported by an overwhelming majority in Congress. Entrepreneurs and high-potential businesses that can bring our nation back to robust levels of job creation and growth are being undermined. There really is no excuse for the SEC’s lack of progress,” said Kerrigan.

Among other changes to outdated securities laws, the JOBS Act makes debt and equity-based crowdfunding legal.  In late February, SBE Council led a daylong series of briefings in Washington to update White House officials, Capitol Hill staff and the SEC on the state of the industry and the investor protections that have been built out within this transparent marketplace for accessing capital.  Crowdfunding experts and entrepreneurs also made it clear that access to capital remains a critical issue for small business owners.

“While lending standards have eased some, according to the latest Fed senior loan officer survey, getting credit remains a difficult task for small businesses. For good measure, it’s worth noting that venture capital investment took a notable dip in 2012. Access to financing remains the biggest hurdle for most entrepreneurs, which makes crowdfunding a critical option in the marketplace,” noted SBE Council Chief Economist Raymond Keating .

At her U.S. Senate nomination hearings for SEC Chair last month, Mary Jo White pledged to make JOBS Act implementation a priority once she steps into her new role.  The Senate Banking Committee overwhelmingly approved her nomination, and the full Senate is expected to vote following their return next week.

“We hope Mary Jo White will move quickly to dislodge the proposed rules. After all, these are still proposals open to public comment.  Our international competitors are going with our ideas in the crowdfunding space and are now moving ahead of us,” said Kerrigan.

She noted that Italy passed a bill in the fall of 2012, and has already issued it first rulemakings this week.  The UK approved a crowdfunding platform, and debt-based crowdfunding is up and running as well.

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