In today’s financial environment, many Issuers are choosing to self underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO). Moreover, as almost all potential investors have computers, many Issuers are choosing to utilize the Internet for such DPO’s. The Securities and Exchange Commission (SEC) has published rules for utilizing the Internet for an offering.
To comply with the SEC rules for electronic use, an Issuer must comply with the following minimum rules, among others:
- An electronic prospectus must provide the same information as a paper written prospectus;
- The Investor must elect to receive electronic delivery of the prospectus and must be provided with personal access codes to access electronic materials over the Internet;
- The Investor must pre-qualify to receive the offering materials (such as being in a particular state, being accredited, etc.) prior to receiving access codes;
- The Investor must be immediately notified of any amendments or changes in the offering documents; and
- The Issuer must have a system for evidencing delivery of materials and maintaining copies of any correspondence and communications by and between the Issuer and Investor through electronic means;
State and Federal Securities Laws
The National Securities Markets Improvement Act of 1996 preempts state registration requirements of certain federally covered securities including most registered offerings and offerings exempt under Rule 506 of Regulation D of the Securities Act of 1933. However, for offerings that are not preempted by the 1996 Act, state securities laws must be reviewed and abided by.
Practically all states have adopted statutes, rules, orders or policies exempting Internet offerings and governing their mechanics. Compliance with the various state securities law requirements may be daunting, however, an Issuer can utilize disclaimers to mitigate the risks of violations. The disclaimers can be general, focusing on the state(s) where the securities are being offered and indicating that the offering is not made to persons elsewhere, or more specific disclaiming an offering in a particular state. Again, an Issuer must maintain control over the potential investors that review its offering documents through access procedures and other internal controls.
Silence is Golden
As with all offerings, Issuers should be careful not to condition the market or discuss the offering on their website with access to offering information being given only to prequalified potential investors.
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 private 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!
