This is part of a series on crowdfunding; this part covers how crowdfunding offers may be advertised.
True crowdfunding — offerings of stock, LLC units and promissory notes — becomes available on May 16, 2016. Sales of the securities must be conducted through an intermediary/portal approved by the SEC and FINRA and an issuer can use only one intermediary.
The intermediary cannot solicit purchases of an issuer’s securities, although the intermediary can advertise its site, and its site should contain a great deal of information about the issuer’s offering.
On the other hand, the issuer can directly advertise its offering by way of a relatively brief “tombstone” ad that directs potential investors to its selected intermediary. (The crowdfunding investments themselves must be handled by the intermediary.)
In other words, while an issuer cannot sell directly to potential investors, the issuer can advertise its offering in a form similar to a limited “tombstone” ad that directs potential purchasers to the intermediary the issuer is using. The information allowed is the following:
(1) A statement that the issuer is conducting an offering, the name of the intermediary through which the offering is being conducted and a link directing the investor to the intermediary’s platform;
(2) The terms of the offering; and
(3) Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer.
The issuer can provide the “tombstone” advertisement in any manner, including on its web site and on social media. Persons acting on behalf of the issuer (marketers, etc.) must comply with the same restrictions as the issuer. Companies may want to consider hiring a third party to help them distribute the tombstone ad.
The issuer can also provide additional information about the offering if 1) it is done through communication channels provided by the intermediary on the intermediary’s platform and 2) the issuer identifies itself as the issuer in all communications by the issuer or by others on behalf of the issuer.
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Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
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