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October 30th, 2013
SEC’s Proposed New Crowdfunding Rules for Small Investors May Significantly Expand Financing Options
On October 23, 2013, the SEC proposed new regulations to implement Title III of the Jumpstart Our Startup Businesses Act to permit Internet offerings to small investors. The proposed rules, nearly 600 pages long, would implement amendments to federal securities laws that would permit issuers to raise capital using Internet offerings to small investors (that is, investors who are not "accredited investors" as defined by SEC regulations), provided the Internet sites containing the offerings are operated by registered broker-dealers or by a new intermediary between issuers and investors, called "funding portals."
The goal of Title III of the JOBS Act is to help startups and small businesses access more capital by making certain securities offerings less costly. The proposed rules follow on the heels of final regulations the SEC issued to permit companies to publicly solicit "private" placements from "accredited" investors over the Internet. (We wrote about the new solicitation rules for issuers and accredited investors-- which went into effect on September 23rd - here)
If approved, the proposed rules will create a brand new regulatory roadmap for:
- companies which offer a possible return of capital and a share of profits ("issuers") seeking funding through the issuance of ownership interests;
- investors; and
- the Internet-based "intermediaries" that facilitate crowdfunding transactions.
The proposed regulations (which are open for public comment for 90 days from publication of the proposed regulations in the Federal Register, a process that takes approximately 60 days) would for the first time permit issuers to use the Internet to offer debt and equity to non-accredited investors.
Recognizing the power of the Internet, the Regs would:
- Promote commentary on the offerings among possibly interested investors
- Require that the offerings be on a website maintained by registered broker dealers or by funding portals (so-called "Intermediaries") which have registered on line with the SEC and with FINRA, a national securities regulatory agency;
- Require that offering materials meeting specified requirements be filed with the SEC, FINRA and on the websites of the Intermediaries;
- Require the Intermediaries to do due diligence on the offering materials before posting in order to avoid 10b-5 liability;
- Require issuers to amend the offering materials on line each time there is a material change during the course of the offering;
- Set up a variety of notices to be delivered to potential investors electronically, and permit investors to rescind their commitment until 48 hours before a scheduled or rescheduled close (reviving such rescission right each time there is a material change, and requiring a committed investor to recommit in order to keep the commitment alive (in effect continuing to opt in, rather than opting out, of an investment commitment);
- Possibly permit an "integrated" offering in which one set of offering materials could be viewed by sources of capital who are small investors (subject to the applicable caps), accredited investors, and even potentially to those interested in a donation model; and
- For US based issuers, access foreign investors and use foreign based broker/dealers or funding portals which have registered with the SEC and with FINRA (subject to securities laws and regulations in their home jurisdictions).
- The proposed Regs would clarify the calculation of the individual limits of $2,000 or 5% of annual income (with spouse if applicable) or net assets, whichever is greater, if both annual income and net worth are below $100,000, or 10% of annual income or net worth if either income or net worth is more than $100,000, with a maximum investment of $100,000 during a 12 months period. The maximum amount an issuer can raise from small investors in a 12 month period is capped at $1 million.
The funding portals would be required to use a bank as escrow agent to hold investor funds until the closing of an offering or return of funds to investors if an offering does not close or is abandoned.
If you have questions about the proposed rules (you may read them here) or about other corporate and finance law issues, contact Thomas Selz at (212) 826 5535 or firstname.lastname@example.org or any other member of the Corporate and Finance Group at Frankfurt Kurnit Klein & Selz. You may submit comments directly to the SEC about the proposed rules via the SEC''s Internet comment form; via e-mail (to email@example.com) or via the Federal eRulemaking Portal. If you are sending comments via e-mail, please include File Number S7-09-13 on the subject line. Paper Comments may be mailed (in triplicate) to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Comments are due 90 days after the proposed rules appear in the Federal Register.
Other Entertainment Law Alerts
Major Studios and Guilds Forge New COVID-19 Production Safety Agreement
As production begins to restart in an ever changing COVID-19 landscape, The Alliance of Motion Picture and Television Producers (AMPTP) and other major studios announced an important deal with the DGA, IATSE, Teamsters, Basic Crafts, and SAG-AFTRA -- meant to ensure the safety and security of their members during the upcoming months. Read more.
September 22 2020
New York City Reopens for Film and Television Production
On July 17, 2020 NYC Mayor Bill de Blasio announced that, with the City entering Phase Four of Reopening on Monday July 20th, 2020, film and television production in the City can restart again in earnest. Read more.
July 21 2020
Los Angeles County Authorizes Television, Film, and Music Production Resume on June 12, 2020 With Strict Regulations
On June 11, Los Angeles County approved a staged resumption of film and TV production beginning June 12, 2020. However, it comes with extensive regulations. Read more.
June 16 2020