Responding To SEC Comments
Background
The SEC Division of Corporation Finance (CorpFin) reviews and comments upon filings made under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). The purpose of a review by CorpFin is to ensure compliance with the disclosure requirements under the federal securities laws, including Regulation S-K and Regulation S-X, and to enhance such disclosures as to each particular issuer. CorpFin will also be cognizant of the anti-fraud provisions of the federal securities laws and may refer a matter to the Division of Enforcement where material concerns arise over the adequacy and accuracy of reported information or other securities law violations, including violations of the Section 5 registration requirements. CorpFin has an Office of Enforcement Liason in that regard.
CorpFin’s review and responsibilities can be described with one word: disclosure!
CorpFin selectively reviews filings, although generally all first-time filings, such as an S-1 for an initial public offering or Form 10 registration under
SEC Advisory Committee On Small And Emerging Companies Reviews Capital Formation
On February 25, 2016, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and listened to three presentations on access to capital and private offerings. The three presentations were by Jeffrey E. Sohl, Professor of Entrepreneurship and Decision Science Director, Center For Venture Research at University of New Hampshire; Brian Knight, Associate Director of Financial Policy, Center for Financial Markets at the Milken Institute; and Scott Bauguess, Deputy Director, Division of Economic and Risk Analysis at the SEC. The presentations expound upon the recent SEC study on unregistered offerings (see blog HERE).
The presentations were designed to provide information to the Advisory Committee as they continue to explore recommendations to the SEC on various capital formation topics. This blog summarizes the 3 presentations.
By way of reminder, the Committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient
Top 4 Reasons Why 2016 is the Year of Crowdfunding Automation
2016 is the year when online automation revolution in equities and securities of private companies will take place.
American tech firms such as FundAmerica CrowdValley and WealthForge are already leading the way in streamlining the automation process. Most importantly, these processes are in compliance with the online requirements of the Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), as well as the Jumpstart Our Business Startup (JOBS) Act.
These online automations allow entrepreneurs, platforms and investors to verify accredited investors online. They will also be able to streamline deal flows, due diligence, the digital signing of documents, automated payments, and much more. Furthermore, dozens of broker-dealers and payment players have already started to create solutions to automate the progression of private deals.
Online automation is a revolution that will cause a positive shift in the crowdfunding industry in 2016. Here are some of the changes we will see in 2016 as a result of online automations:
1. New
House Passes More Securities Legislation
In what must be the most active period of securities legislation in recent history, the US House of Representatives has passed three more bills that would make changes to the federal securities laws. The three bills, which have not been passed into law as of yet, come in the wake of the Fixing American’s Surface Transportation Act (the “FAST Act”), which was signed into law on December 4, 2015.
The 3 bills include: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing an amendment to the definition of accredited investor. None of the bills have been passed by the Senate as of yet.
Meanwhile, the SEC continues to finalize rulemaking under both the JOBS Act, which was passed into law on April 5,
Will Pre-funded Deals Strategy cause a shift in Real Estate Crowdfunding?
Real estate crowdfunding platforms are increasingly shifting towards pre-funded deals to increase their market share and deal flow. Pre-funded deals occur when a crowdfunding platform gives a real estate developer who needs capital right way a loan guarantee without having to first take the risk of raising the entire loan amount from online investors. According to the 2015 TRN Real Estate Crowdfunding Report, crowdfunding platforms are opting for this strategy to meet the needs of developers who need to raise capital quickly in order to close lucrative deals in a short amount of time. In such situations, pre-funded deals come in handy because raising funds online can take longer – usually a few weeks or even months. While pre-funded deals enable real estate developers fast funding, it also benefits investors who get returns faster because deals with developers are closed prior to the commencement of the fundraising process online.
Financing Requirements
The challenge with the innovative idea of funding
SEC Gives Insight On 2016 Initiatives
SEC Chair Mary Jo White gave a speech at the annual mid-February SEC Speaks program and, as usual, gave some insight into the SEC’s focus in the coming year. This blog summarized Chair White’s speech and provides further insight and information on the topics she addresses.
Consistent with her prior messages, Chair White focuses on enforcement, stating that the SEC “needs to go beyond disclosure” in carrying out its mission. That mission, as articulated by Chair White, is the protection of investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. In 2015 the SEC brought a record number of enforcement proceedings and secured an all-time high for penalty and disgorgement orders. The primary areas of focus included cybersecurity, market structure requirements, dark pools, microcap fraud, financial reporting failures, insider trading, disclosure deficiencies in municipal offerings and protection of retail investors and retiree savings. In 2016 the SEC intends to focus enforcement on financial reporting, market structure, and the
StartEngine launches as a Regulation A+ Crowdfunding Equity platform
StartEngine Crowdfunding Inc, a leading technology accelerator in Los Angeles that provides tech startups with mentorship and resources, officially launch Friday, 19th June 2015. StartEngine is set to offer users real crowdfunding. Founded in 2011, StartEngine focuses on media and digital technology market. By 2014, this company had invested in 57 new businesses and looks forward to helping thousands of entrepreneurs realize the American Dream.
The launch of StartEngine crowdfunding engine comes just a few months after the Securities and Exchange Commission (SEC) approved changes to Regulation A+ as required by the Jumpstart Our Business Startups Act or JOBS Act’s Title IV rules that allow entrepreneurs to raise a maximum of 50 million dollars in capital through crowdfunding. These changes are often referred to as “Regulation A+.” According to Ron Miller, CEO at StartEngine, ‘Investing through crowdfunding is one of the greatest entrepreneurship advancement happening in our generation and we are happy to be part of this revolution.
State Blue Sky Concerns; Florida and New York
I have often written about state blue sky compliance and issues in completing offerings that do not pre-empt state law, including Tier 1 of Regulation A+ and initial or direct public offerings on Form S-1. I’ve also often expressed my opinion that the SEC, together with FINRA, is best suited to govern most securities-related registrations and exemptions, including both for offerings and broker-dealer matters, and that the states should be more focused on state-specific registrations and exemptions (such as intrastate offerings) and investigation and enforcement with respect to fraud or deceit, or unlawful conduct.
Despite the SEC support for the NASAA-coordinated review program to simplify the state blue sky process for securities offerings, such as under Tier 1 of Regulation A+, only 43 states participate. I say “only” in this context because the holdouts – including, for example, Florida, New York, Arizona and Georgia – are extremely active states for small business development and private capital formation. Moreover, even
