Entertainment Law Alerts

September 12th, 2013

New JOBS Act Regulations Alter Crowdfunding

The SEC recently issued final regulations to implement Title II of the Jumpstart Our Startup Businesses Act (also known as the "JOBS Act"). The new Regulations permit companies to publicly solicit "private" placements from "accredited" investors over the Internet and through other public advertisements. This is a significant change for entrepreneurs, founders, and other company owners. Previously, to take advantage of the safe harbor provisions of "Regulation D" -- permitting an offering of securities which do not have to be registered with the SEC -- an offering of securities could not involve a public solicitation to potential purchasers. The Regulations, which are more than 100 pages long, take effect on September 23rd, 2013. A short summary of the important changes follows below:

  • Under the Regulations, an issuer may use general solicitations including the Internet and social media to sell its securities to accredited investors (as defined in SEC regulations) provided  that the potential purchasers, and purchasers, are in fact accredited investors and that the issuer has taken reasonable steps to verify such accredited investor status, both prior to sending offering materials and prior to accepting a subscription.
  • The Regulations make clear that the prior practice of self-certification by investors through a "check the box" approach will not be reasonable grounds for believing that the investors are, in fact, accredited investors. Something more is required.
  • The Regulations decline to provide a safe harbor of steps an issuer could take to have reasonable grounds for believing that it is dealing with accredited investors. The Regulations, do, however, give examples of steps which could be taken, while emphasizing that each situation needs to be viewed on its own merits. The Regulations also make clear that the burden will be on the issuer to demonstrate, if challenged, that it took reasonable steps, and what those steps were, to believe than a particular investor is an accredited investor.
  • The Regulations note that tax returns, W-2 Forms, bank statements, and other types of information to ascertain accredited investor status along with sworn affidavits from investors or potential investors, could give an issuer a basis for believing the investors are accredited. Different steps would be required if the issuer is relying on the net worth test to determine if an investor or potential investor is accredited for SEC purposes.
  • The Regulations also note that Regulation S will apply to foreign accredited investors who participate in an Internet offering.
  • Internet offerings to investors who are not accredited investors under Title III of the JOBS Act remain illegal until the SEC adopts final regulations to implement Title III.


If you have questions about the new regulations or other corporate and finance law issues, contact Thomas Selz at (212) 826 5535 or tselz@fkks.com, or any other member of the Corporate and Finance Group at Frankfurt Kurnit Klein & Selz PC.