Title III requires all these disclosures, reported on the new Form C:
- The name, legal status, physical address, and website of the issuer
- The names of the directors and officers of the issuer and their employment history over the last three years
- The name of each person owning 20% or more of the issuer’s stock
- The issuer’s business and business plans
- The number of employees of the issuer
- A statement of risks
- How much money the issuer is trying to raise
- How the money will be used
- The price of the shares or the method for determining the price
- The capital structure of the issuer, including the rights of all security-holders, restrictions on transfer, and how the securities are being valued
- A description of the portal’s financial interests
- A description of the issuer’s liabilities
- A description of other offerings conducted within the past three years
- A description of “insider” transactions
- A discussion of the issuer’s financial condition
- Financial statements or their equivalent
- Any other information necessary in order to make the statements made not misleading
As I write this, a lot of very smart entrepreneurs and software engineers are working to automate these disclosures. They have to: to make money running a Title III portals, you’re going to have to automate everything that can be automated.
Now look at Title II. As a write this, the disclosures for almost all Title II deals are prepared the old-fashioned way, with a lawyer writing an old-fashioned Private Placement Memorandum. The PPM for Deal 1 on Portal X might or might not include the same information as the PPM for Deal 2 on Portal X, and almost certainly doesn’t include the same information or look the same as the PPM for deals on Portal Y. An investor trying to compare apples to apples would go, well, bananas.
That situation is ripe (sorry) for change and I think it will change as Title III comes online, for three reasons:
- As someone argued recently, investors couldn’t care less about the distinction between Title II and Title III. They are going to want to see the same information in the same format.
- Using the tools developed for Title III, Title II portals will be able to provide more information than they are currently providing, cheaper and more effectively.
- There is no law that dictates what information must be provided in a Title II offering. But we still think about 17 CFR §240.10b-5, which makes it unlawful to “. . . .make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made. . . .not misleading. . . .” As the industry develops, it seems at least possible, if not likely, that the disclosures required by Title III could be viewed as the standard for avoiding Rule 10b-5 liability.
Questions? Let me know.