A crowdfunding intermediary must provide specified disclosures to investors and take other steps related to the offering oriented toward investor protection, such as: • ensuring that all offering proceeds are only provided to issuers when the amount equals or exceeds the target offering amount, and allowing for cancellation of commitments to purchase in the offering;
• ensuring that no investor in a 12-month period has invested in excess of the limit described above in all issuers conducting exempt crowdfunding offerings;
• taking steps to protect privacy of information; • not compensating promoters, finders, or lead generators for providing personal identifying information of personal investors;
• prohibiting insiders from having any financial interest in an issuer using that intermediary’s services; and
• meeting any other requirements that the SEC may prescribe.
Requirements as to issuers Issuers also must meet specific conditions in order to rely on the exemption, including making filings with the SEC and providing to investors and intermediaries information about the issuer (including financial statements, which would be reviewed or audited depending on the size of the target offering amount), its officers, directors, and greater than 20% shareholders, and risks relating to the issuer and the offering, as well specific offering information such as the use of proceeds for the offering, the target amount for the offering, the deadline to reach the target offering amount, and regular updates regarding progress toward reaching the target. A crowdfunding issuer will also be subject to reporting requirements after the offering, as the SEC may determine pursuant to its rules. Securities sold in crowdfunding offerings are not restricted securities, but they are subject to transfer restrictions for one year following the sale. The SEC’s rules adopted under Title III will also
prohibit issuers from advertising the terms of the exempt offering, other than to provide notices directing investors to the funding portal or broker, and will require disclosure of amounts paid to compensate solicitors promoting the offering through the channels of the broker or funding portal. A purchaser in a crowdfunding offering could bring an
action against an issuer for rescission in accordance with section 12(b) and section 13 of the Securities Act, as if liability were created under section 12(a)(2) of the Securities Act, in the event that there are material misstatements or omissions in connection with the offering.
46 JOBS Act Quick Start
The crowdfunding exemption is only available for domestic issuers that are not reporting companies under the Exchange Act and that are not investment companies, or as the SEC otherwise determines is appropriate. Bad actor disqualification provisions similar to those required under Regulation A are also required for exempt crowdfunding offerings. The Title III exemption pre-empts state securities laws
by making exempt crowdfunding securities “covered securities”; however, some state enforcement authority and notice filing requirements would be retained. State regulation of funding portals will also be pre-empted, subject to limited enforcement and examination authority.
SEC and Finra guidance On May 7 2012, the SEC’s Division of Trading and Markets issued frequently asked questions which addressed a number of questions regarding crowdfunding intermediaries under Title III of the JOBS Act.3
The SEC’s
answers described the various provisions of Title III applicable to crowdfunding intermediaries that are outlined above. Finra has established an interim form to seek information from prospective funding portals intending to apply for membership with Finra pursuant to Title III of the JOBS Act. Finra has invited prospective funding portals to complete the Interim Form for Funding Portals voluntarily until Finra and the SEC adopt final rules implementing Title III of the JOBS Act and establishing the registration procedures for funding portals.4 Until the SEC and Finra rules are adopted, Finra will use
the information collected with the Interim Form for Funding Portals to become more familiar with the proposed business models, activities and operations of funding portals. Once the final crowdfunding rules are adopted, additional information will be required of funding portals seeking to actually register with Finra and the SEC. The information Finra now requests includes: • contact and general information about the funding portal;
• ownership and funding information about the prospective funding portal;
• information about the prospective funding portal’s management; and
• information about the funding portal’s business relationships, business model and compensation. Finra will treat information submitted using the Interim Form for Funding Portals as confidential.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92