If you missed it during the holidays, unfortunately the SEC has indicated that it will not issue its final rules for crowdfunding or for Reg. A+ offerings until October of 2015. In addition, final regulations generally take effect 60 days after being officially published in the Federal Register. That means the earliest that these types of offerings will be allowed is a year from now, in January 2016.
“Crowdfunding” here means offerings where lower-level investors can purchase stock, LLC units or promissory notes. This is different than what is touted currently as “crowdfunding.” The current version is advance sales of goods (pay now, often at a discount, and receive the goods later when they’ve been manufactured) or promotional items or recognition for the money.
In addition, the tea leaves indicate that the SEC is under immense pressure to NOT follow its preliminary Reg. A+ rule. That preliminary rule would prevent the states from requiring that an offeror also obtain state approval of an offering in excess of $5 million even though the SEC has already approved it. It’s possible that the recent Republican capture of the U.S. Senate might cause a different result, but that seems unlikely given that state regulators and specific Senators are vehemently opposed to the preliminary rule.
In any case, the question for now is: What can companies or funds do now to raise investor money that both allows full public advertising and does not require that the investors all be accredited (as the year-old Rule 506c offering does)?
The practical choices are a federal S-1 offering or the current Reg. A offering – both of which can lead to the securities being traded on the over-the-counter market – or a single state qualification by permit. These require some explanation and will be discussed in the next email/blog-post after this one.
Companies that DON’T need full public advertising can make a traditional Rule 506b offering. Basically a company can contact potential investors it reasonably believes to be accredited or sophisticated and any type of foreign investor about the offering. A company can also post information on web sites and social-media sites about what the company does and about this type of investing. (It cannot provide information about past, current or future offerings, though.) Those sites can also ask viewers to respond to an investor questionnaire – and the company can provide information about the offering if the responder seems to be accredited or sophisticated (or foreign). This should not be done without guidance from an attorney, though, as it’s easy to cross over into prohibited solicitation. A subsequent email/blog-post will discuss this in more detail as well.
Bruce E. Methven
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