Crowdfunding Guidance Released by SEC

The Securities and Exchange Commission (“SEC”) has issued Compliance and Disclosure Interpretations (C&DIs) providing interpretive guidance on Regulation Crowdfunding, which became effective May 16. The C&DIs answer a number of questions relating to the crowdfunding exemption and its requirements, including disclosure requirements, advertising and promoter compensation in a crowdfunded offering.

  • The SEC guidance clarifies that, in conducting a crowdfunded offering, issuers may disseminate information not constituting an offer prior to filing a offering statement and the commencement of a Regulation Crowdfunding offering. Thus, factual business information that does not condition the public mind or arouse public interest in a securities offering is not an offer and may be disseminated widely.
  • The C&DIs also indicate that entities that  invest in Regulation Crowdfunding offerings are subject to investment limits in Rule 100(a)(2) of Regulation Crowdfunding.  Instead of calculating investment limits based on annual income and net worth, a entity calculates the limits based on its revenue and net assets (as of its most recent fiscal year end).
  • The SEC provides guidance on permissible advertising in connection with a crowdfunded offering. The C&DIs advise issuers that an  issuer may advertise the “terms of the offering” under Regulation Crowdfunding, but any such advertising that is made other than through communication channels provided by the intermediary on the intermediary’s platform will be limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding. “Terms of the offering” is defined to include “the amount of securities offered, the nature of the securities, the price of the securities and the closing date of the offering period.” The SEC also clarifies that issuers may use videos to advertise the terms of the offering, as long as the content complies with applicable SEC regulations.
  • Finally, the C&DIs clarify that when an issuer is compensating a third party to promote the issuer’s offering outside of the intermediary’s communication channels, those third-party communications need to comply with the notice requirements of Rule 204(b) of Regulation Crowdfunding.

In  addition to the publication of the C&DIs, the SEC simultaneously issued Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers. The guide is a “plain English” resource for issuers that are considering using Regulation Crowdfunding to raise capital, and covers the basic requirements of the SEC’s crowdfunding regulations. Topics addressed include issuer disclosure, limits on advertising and the use of promoters, restrictions on the resale of securities acquired in a crowdfunded offering and “bad actor” disqualifications from using Regulation Crowdfunding.