Crowdfunding through Funding Portals: New Regulations, New Risks – What You Need to Know in 2015
Crowdfunding involves the raising of money via the internet through small investments of many investors. To permit crowdfunding, the JOBS Act Title III added two provisions to the Securities Act. Issuers may offer and sell securities in unregistered offerings provided that certain disclosures are made by issuers.
In October 2013, the Securities and Exchange Commission (SEC) proposed new regulations for crowdfunding, specifically involving the rules governing the offering and sale of securities under Section 4(a)(6) of the Securities Act of 1933, and regulation of registered funding portals and brokers. All crowd-funding offerings must be conducted through such intermediaries, registered with the SEC and members of the Financial Industry Authority (FINRA).
The SEC is increasingly enforcing laws regarding crowdfunding portals. The focus of these concerns is whether the portals offer and sell securities in unregistered transactions to US 'persons' in violation of the Securities Act, and whether they act as unregistered broker-dealers to these people. For example, in November 2014, the SEC issued cease-and-desist proceedings against Eureeca Capital SPC (Eureeca) because it did not prevent US investors from using their 'platform' in the Cayman Islands. The SEC concluded that Eureeca violated Section 5(c) of the Securities Act by offering the sale of securities to three US investors without verifying that they were accredited.
Now, an eligible crowdfunding issuer may raise a maximum of $1 million from an unlimited number of investors in a 12-month period. But, there are specific conditions for advertising, re-sale, funding portal exemption from Broker-Dealer registration, and other requirements (The intermediary is prohibited from owning any interest in an issuer), obligations, and other issues that investors, brokers, and crowdfunding portal managers need to be aware. Furthermore, other worries include, fear of scams and other abuses, lack of due diligence regarding equity stock purchases, communication problems with large numbers of individuals, cumbersome and costly legal and accounting transactions, and serious liability risks, among others.
In this two-hour, LIVE Webcast, a panel of thought leaders and practitioners assembled by The Knowledge Group will discuss the significant new regulations regarding Crowdfunding through Funding Portals. The panel of speakers will offer the audience advice about how to avoid the legal and regulatory risks as a Broker, dealer, investor, or crowd funder.
Key issues that will be covered in this course are:
- Crowdfunding Portals
- JOBS Act Title II, III
- JOBS Act and Crowdfunding
- Title II, III Crowdfunding
- Rule 506
- New Portal Rules & Regulations
- General Solicitation and Advertising
- New Exemption for Portals
- No Registration or Regulation
- Broker/Dealer Registration
- Funding Limitations
- Securities Act Violations
- Compliance and Litigation Risks
- Summary and Definitions
- Regulation A
- Describe 2 types
- Single tier
- Two tier
- Describe 2 types
- Not talking about Title III
- 506(c) In General
- How does it differ from 506(b)?
- Self certification
- Citizens VC
- General Solicitation
- What is general solicitation?
- All purchasers (not offerees) must be accredited
- Issuer must take reasonable steps to verify
- Even if the investor is actually accredited
- No fixed method – principles‑based
- Check the box verification will not be sufficient
- Safe Harbor:
- Income Qualification: 2 Years Tax Returns and a written representation regarding the current year;
- Net Worth Qualification:
- Assets: bank statements, brokerage statements, securities holdings, CDs, tax assessments and appraisal of assets;
- Liabilities: consumer report (credit report) from nationwide agency; and
- Reports and statements dated within 3 months of purchase
- Written confirmation (within 3 months of purchase) from one of the following persons that the investor is accredited:
- Registered broker-dealer;
- Registered investment advisor;
- Attorney; or
- Certified public accountant.
- Certification from investor who previously invested with the issuer.
- Cannot rely on safe harbor if issuer knows the person is not accredited
- Keep exemption even if an investor is not accredited if the issuer took reasonable steps to verify
- How does it differ from 506(b)?
- Regulation A +
- In General
- Tier 1 and tier 2
- Eligible issues
- Eligible investors
- Testing the waters
- Compared to Regulation D
- In General
- Current Market
- Jobs Act
- No Compensation -- SEC Release
- Angel List and Funding Club
- No active solicitation of investors
- Investment Advisors
- BROKER/DEALER RULES
- In General
- Not applicable to issuer
- Blass Speech
- Serial issuer
- State rules
- Citizens VC
- In General
Who Should Attend:
- Finance Lawyers
- Investment and M&A Related Lawyers
- In-House Lawyers
- Finance Directors/Executives
- Fund Managers
- Senior Management
- Capital Market Professionals
- Other Related/Interested Professionals and Organizations
Darryl Steinhause has more than 30 years of experience in complex securities and tax transactions, representing both sponsors and investors in a range of deal structures. The Daily Journal selected Steinhause as one of the Top 100 Lawyers in California in 2014 for his work with clients looking to invest in new online real estate platforms. Steinhause was one of the first in his field to recognize the implications of the 2012 JOBS Act which amended Rule 506 of Regulation D of the Securities Act of 1933, and has been advising clients on both the potential and the complications of such platforms. Steinhause has been recognized as an industry expert at the forefront of this exciting new area of opportunity, and has spoken on the subject of crowdfunding at numerous conferences since the Rule changed in 2012.
Darryl Steinhause has more than 30 years of experience in complex securities and tax transactions, representing both sponsors and investors …
Noreen Weiss Adler is an accomplished corporate and transactional lawyer and management advisor, with over 25 years’ experience advising the C-Suite and Boards of Directors on all manner of corporate, finance, operations and transactional matters, including expertise advising both issuers and Internet securities platforms in the newly developing securities-based crowdfunding space. She also assists companies and investors in US domestic and cross border finance and business structuring deals, capital markets (global debt and equity offerings) and cross border business development transactions such as M&A and joint ventures, and has spent her career focused on international work at the highest level of business and finance. She frequently assists non-US businesses expand into the US. Her clients include US and non-US start-ups and emerging companies, frequently as outside general counsel where she handles an array of commercial and operational issues ranging from corporate governance to day-to-day operations matters such as contracts, product licensing, acquisition and distribution, as well as assisting them with capital raising campaigns. She also represents mid to large – size multinationals, and investors including family offices and private equity firms.
Noreen Weiss Adler is an accomplished corporate and transactional lawyer and management advisor, with over 25 years’ experience advising the …
Charles Kaufman, Counsel at Homeier & Law P.C., has been advising growing companies and their leaders for 20 years. In private law firms and as general counsel of a public company he has helped his clients to create, finance, govern, combine and exit their businesses, and to form strategic alliances, across a broad range of industries, including medical devices, healthcare, software, nanotechnology, film and music production, garment manufacturing, retailing, real estate investment and semiconductors. Charles advises early stage companies on obtaining both debt and equity capital from angel and venture capital investors, as well as expanded opportunities under Regulation 506(c), Regulation “A Plus” and the proposed crowdfunding rules of the JOBS Act. He has extensive experience advising public companies on securities regulation and compliance and advising both new and established companies in public and private securities offerings during a period of rapid change in the financial and regulatory landscape, from the still-emerging JOBS Act to Dodd-Frank and Sarbanes-Oxley. An active member of Homeier & Law’s prominent EB-5 practice, Charles has advised numerous companies in raising capital under the program. As EB-5 transactions have become part of the financial mainstream, but also come under unprecedented scrutiny, clients have sought out his combined expertise in U.S. securities laws and regulations and in the specialized demands of EB-5 financing. Charles earned both his J.D. and B.A. degrees at the University of California at Los Angeles. He is a member of the State Bar of California and serves on the editorial board of its International Law Journal.
Charles Kaufman, Counsel at Homeier & Law P.C., has been advising growing companies and their leaders for 20 years. In …
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NASBA Field of Study:
Specialized Knowledge and Applications
NY Category of CLE Credit:
Areas of Professional Practice
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Homeier & Law, P.C. was launched by lawyers who wanted to build a better law firm for its clients. Our firm is built on the principles of legal excellence and providing practical advice geared toward achieving desired results. This allows us to make a distinctive and substantial impact for our clients. We see clients as our partners and truly understand that their success is our success. Our crowdfunding practice combines sophisticated legal knowledge and practical business experience with prices perfect for companies that need good legal work but don’t want to conduct a capital raise just to pay for their legal bills.