The CFIRA (Crowdfund Intermediaries Regulatory Advocates) was established by crowdfunding industry professionals for the purpose of working with the SEC and FINRA on establishing and maintaining crowdfunding rules and industry practices. As I blogged in the past, I believed at one point, based on news and information released from the CFIRA, that the CFIRA intended to become a self regulatory organization (SRO) and register with the SEC under Section 15A. As of today, it appears that the CFIRA is still working towards the goal of becoming an SRO. In any event, I expect that the CFIRA will be an active participant in the crowdfunding industry and invaluable source of input and information.
CFIRA and the SEC
On May 15, 2012, the CFIRA submitted a comment letter to the SEC regarding the pending Crowdfunding regulations. The comment letter specifically addressed issues regarding how the general solicitation rules will interact with social media and the internet. The letter addressed the general solicitation changes to Rule 506 of Regulation D and the new Section 4(6), crowdfunding exemption. The full text of the letter is available on the SEC website.
In particular, and as I have enumerated in past blogs, the Rule 506, Regulation D change is such as to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. The crowdfunding exemption requires that Issuers “not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.” The current definition of general solicitation set forth in Rule 501 is “any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.”
CFIRA and SEC Rulemaking
The CFIRA letter to the SEC appropriately requested that the SEC rulemaking address the following questions:
“1. Will issuers offering and selling securities pursuant to Section 230.506 be permitted to send notices to potential investors that do not constitute a general solicitations and, as a result, retain their ability to sell securities to up to 35 non-accredited investors?
2. Will the rules require any specific disclosure in a section 230.506 solicitation?
3. What information may be included in a “notice” directing investors to a funding portal or broker?
4. The rules should contemplate the role of social media (including, but not limited to, Facebook/Twitter/Linkedin/Google+). We anticipate that entrepreneurs will solicit from their networks via social media buttons on SEC regulated funding portals”
CFIRA Makes Suggestions
The CFIRA letter continues to make suggestions as to the questions. In particular, the CFIRA suggests (the following paraphrased for brevity):
1. Issuers should be permitted to send notices to investors without being deemed to be engaged in a general solicitation. The SEC should regulate the content of such notices.
2. Social media content is short and accordingly disclosures and legends are problematic. The CFIRA suggests that the rules allow the use of social media without legends so long as legends and disclosures are otherwise provided in an effective manner, such as by link.
3. General solicitation prohibitions for crowdfunding should be limited to Issuers and not include communications by third parties out of the control of the issuer, such as when potential investors forward communications or share communications via social media.
4. Exemption language should be included which reflects distribution or promotion of offerings via “0 characters” such as one-click buttons for Facebook “likes”, Google+1, Pin it, etc.
5. The CFIRA suggest the following information be permitted in a crowdfunding notice, and not constitute a general solicitation: (i) name of business; (ii) amount of offering and type; name of intermediary and link to offering; and (iii) informational in nature, no guarantees of rates of return disclosure.
Finally, the CFIRA letter gives examples of 0 character, 140 character, 360 character and 1500 character language.
The Author
Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions
Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the over the counter market including the OTCBB and OTCQB. For almost two decades Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.
Ms. Anthony’s focus includes but is not limited to crowdfunding, registration statements, PIPE transactions, private placements, reverse mergers, and compliance with the reporting requirements of the Securities Exchange Act of 1934 including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SRO’s such as FINRA and DTC for corporate changes such as name changes, reverse and forward splits and change of domicile.
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