On April 5, 2012 President Obama signed the JOBS Act into law.  In accordance with the JOBS Act requirement that all crowdfunding platforms (i.e. websites and intermediaries)  be a member of a national securities association, the new self regulatory organization (SRO), The Crowdfunding Intermediary Regulatory Association (CFIRA) has already been formed.   The CFIRA will be charged with ensuring investor protection and market integrity.  The CFIRA will have members from crowdfunding investor intermediaries as well as related industries such as venture capital firms.  In addition to regulating its members, the CFIRA will provide investors with information such as learning about crowdfunding and its risks.

Opportunity For All Americans

Crowdfunding provides an opportunity for all Americans, whether accredited or not, and whether connected with an elite investment banking firm or not, to invest small amounts of money in small businesses that they know or just believe in.  Small businesses provide jobs and sometimes small businesses become big businesses.  For the first time in history average Americans will have an opportunity to invest in these businesses at the ground level.  The crowdfunding bill accomplishes this goal in two ways.  First it creates a legal exemption to allow small investors to invest small amounts of money in businesses without first requiring registration with the SEC.  Second, it allows small businesses to advertise for these investors, through CFIRA member intermediaries, where before such advertisement was strictly prohibited.

In addition to providing investors with the opportunity to invest on the ground floor level of businesses, the bill provides small businesses with access to capital, and access to capital means the ability to hire employees.

SEC to Structure New Regulations

The crowdfunding bill gives the SEC nine months to structure the new regulations.  The CFIRA will work closely with the SEC to accomplish this goal.  It is anticipated that the new regulatory framework will, at the least provide for (i) a method to test an investors understanding of the investment and risk; (ii) basic background on the Issuers including criminal checks; (iii) adequate disclosure on the investment; (iv) confidentiality regarding information provided by investors, including financial information; (v) centralized reporting by both issuers and investors to ensure that the statutory dollar limits are not exceeded; and (vi) set forth regulations for the operations of the intermediaries, including professional conduct and rules of fair play.

From a more specific legal standpoint, the new regulations will:

• Create a new exemption under Regulation D allowing for the private placement of securities to unaccredited investors through crowdfunding intermediary websites;

• Allow for the public advertising and promotion of private securities offerings;

• Amend the Sarbanes-Oxley Act of 2002 to decrease the reporting and internal control requirements for smaller public companies;

• Expand the number of private shareholders from 500 to 2,000 before mandatory SEC reporting;

• Provide regulations to support private company market places (PCM’s)

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Section 3(b) of the Securities Act gives the SEC authority to exempt from registration certain offerings where the securities to be offered involve relatively small dollar amounts. Under this provision, the SEC has adopted Regulation A, a conditional ex-emption for certain public offerings not exceeding $5 million in any 12-month period. An offering statement (consisting of a notification, offering circular, and exhibits) must be filed with the SEC Regional Office in the region where the company’s principal business activities are conducted. Although Regulation A is technically an exemption from the registration requirements of the Securities Act, it is often referred to as a “short form” of registration since the offering circular (similar in content to a prospectus) must be sup-plied to each purchaser and the securities issued are freely tradeable in an aftermarket.

The principal advantages of Regulation A offerings, as opposed to full registration on Form S-1, SB-1 or SB-2, are:

1. Required financial statements are simpler and need not be audited; and
2. There are no periodic SEC reporting requirements (other than sales reports fol-lowing the sale of the securities) unless the issuer has more than $10 million in total assets and more than 500 shareholders.

Regulation A and Offering Circulars

There are three permitted offering circular formats under Regulation A, one of which is a simplified question-and answer document. This style of disclosure is useful to potential investors and may offer significant benefits to the issuer in the time expended and the costs of preparation.

All types of companies which are not reporting under the Exchange Act may use Regu-lation A, except “blank check” companies and investment companies registered or re-quired to be registered under the Investment Company Act of 1940.

In most cases, Regulation A may also be used by shareholders for the resale of up to $1.5 million of securities.

“Test The Waters” Provision

Regulation A includes a provision which allows an issuer to “test the waters” to deter-mine whether or not there is any investor interest in its securities before the filing of a complete offering document. Thus, an issuer may publish factual information about its business or proposed business before incurring a full range of legal, accounting and other costs, in order to gauge potential investor interest in a possible securities offering; however, the provision specifically provides that no money may be solicited or accepted until an offering statement has been qualified by the Commission, and prescribed offer-ing materials have been delivered to potential investors.

Rule 504

Rule 504 of Regulation D provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period. The issuer may use this exemption so long as it is not a blank check company and is not subject to Exchange Act reporting re-quirements. Like the other Regulation D exemptions, in general the issuer may not use public solicitation or advertising to market the securities and purchasers receive “re-stricted” securities. However, an issuer can use this exemption for a public offering of its securities and investors will receive freely tradable securities under certain specific cir-cumstances.

Filing of Form D

There are no periodic SEC reporting requirements (other than filing Form D) unless the Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels pri-vate and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!