Tag Archives: Rule 506

No Demo Days For Title III Issuers

Crowdfunding is a marketing business. But when it comes to marketing an offering of securities by a Title III issuer, things get complicated. That’s why this is three times longer than any blog post should be.

Why It Matters

No Demo Days For YouSection 5(c) of the Securities Act provides that an issuer may not make an “offer” of securities unless a full-blown registration statement is in effect, of the kind you would prepare for a public offering.

There are lots of exceptions to the general rule and Title III is one of them: you can make “offers” of securities without having a full-blown registration in effect, if you comply with the requirements of Title III.

On one hand that’s good, because if you market your offering as allowed by Title III, you’re in the clear. On the other hand, if you make “offer” of securities without meaning to, or without complying with the intricacies of Title III, you could be in trouble in two ways:

  • You might have violated section 5(c), putting yourself in jeopardy of enforcement action by the SEC and other liability.
  • By making an illegal offer, you might have jeopardized your ability to use Title III at all.

What is an “Offer” of Securities?

Section 2(a)(3) of the Securities Act defines “offer” very broadly, to include “every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.” And the SEC has defined “offer” even more broadly than those words suggest. Going back to 1957, the SEC said that any publicity that could “contribute to conditioning the public mind or arousing public interest” could be treated as an “offer.”

These examples illustrate the spectrum:

  • A company continues to advertise its services as usual, keeping its plans for an offering under wraps, then files an S-1 registration statement.
  • A company steps up its public relations efforts before a new product announcement, which happens to coincide with a new public offering.
  • For six months before it files a registration statement, a company triples its advertising budget, trying to build brand recognition specifically with the investing public.
  • A company puts up a website announcing “Please buy our common stock!”

The SEC has adopted a number of rules describing behavior that will not be treated as an “offer” for purposes of section 5(c). For example, Rule 135 allows so-called “tombstone” advertisements of registered offerings, Rule 135c allows notices of private offerings by publicly-reporting companies, and Rule 169 allows factual business information released by an issuer that has filed or intends to file a registration statement. But all these rules apply only to companies that are or intend to become public or publicly-reporting. There are no equivalent rules dealing with the behavior of small companies.

A Different Definition for Small Companies?

With that background, advice given by the SEC in 2015 catches your attention:

Question: Does a demo day or venture fair necessarily constitute a general solicitation for purposes of Rule 502(c)?

SEC Answer: No. Whether a demo day or venture fair constitutes a general solicitation for purposes of Rule 502(c) is a facts and circumstances determination. Of course, if a presentation by the issuer does not involve an offer of a security, then the requirements of the Securities Act are not implicated.

The italicized statement is true, by definition. If there is no “offer,” the securities laws don’t apply. Even so, it’s hard to reconcile with the SEC guidance for public companies. A “demo day” iDemo Day Presentations, by any definition, an event where companies make presentations to investors. Not to customers, to investors. If merely “conditioning the public mind” can be an offer, it is very hard to understand how presenting to a roomful of investors could not be an offer.

Trying to reconcile the two, you might conclude that the SEC is, in effect, using different definitions of “offer” depending on the circumstances. During the period surrounding a public offering of securities a stringent definition applies (the 1957 ruling involved the period immediately following the filing of a registration statement) while outside that period a more lenient definition applies. If that were true, those of us trying to advise Title III issuers would sleep better.

There are two glitches with the theory, however:

  • Maybe the SEC will view the period surrounding a Title III listing in the same way it views the period surrounding a public registration statement.
  • The preamble to the final Title III regulations actually cites Rule 169 and cautions that “The Commission has interpreted the term ‘offer” broadly. . . .and has explained that ‘the publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer. . . .’” That sure doesn’t sound like a more lenient rule for Title III.

The Title III Rule for Advertising

Title III is about Crowdfunding, right? Doesn’t that mean Title III issuers are allowed to advertise anywhere and say anything, just like Title II issuers?

Not exactly.

A core principle of Title III is that everything happens on the portal, where everyone can see it, so nobody has better access to information than anyone else. A corollary is that that Title III issuers aren’t allowed to advertise freely. If a Title III issuer put information about its offering in the New York Times, for example, maybe readers of the New York Post (are there any?) wouldn’t see it.

A Title III issuer can advertise any where it wants – Twitter, newspapers, radio, web, etc. – but it can’t say any thing it wants. All it can do is provide a link to the Funding Portal with an ad that’s limited to:

  • A statement that the issuer is conducting an offering tweet
  • The terms of the offering
  • Brief factual information about the issuer, e.g., name, address, and URL

In the public company world, those are referred to as “tombstone” ads and look just about that appealing. In the online world issuers can do much better. A colorful post on the issuer’s Twitter or Facebook pages saying “We’re raising money! Come join us at www.FundingPortal.com!” is just fine. 

Insignificant Deviations From The Rules

Recognizing that Title III is very complicated and new, section 502 of the Title III regulations provides:

A failure to comply with a term, condition, or requirement. . . .will not result in the loss of the exemption. . . .if the issuer shows. . . .the failure to comply was insignificant with respect to the offering as a whole and the issuer made a good faith and reasonable attempt to comply. . . .”

The language is vague, as it has to be, but it certainly suggests that Title III issuers can make mistakes without losing the exemption. And there’s no reason why mistakes in advertising an offering should be treated more harshly than other mistakes.

The purpose of the advertising rule, as we’ve seen, is to ensure that every investor has access to the same information. If a Title III issuer mistakenly provides more information about its offering in a Facebook post than it should have, the infraction could be cured easily – for example, by ensuring that any information in the Facebook post appeared on the Funding Portal for at least 21 days before the offering goes live, or by correcting the Facebook post and directing Facebook friends to the Funding Portal.

Where Does That Leave Us?

Ideally, a company thinking about raising money using Title III would follow these simple rules:

  • Don’t attend demo days.
  • In fact, don’t mention your plan to raise money to any potential investors until you register with a Title III Funding Portal.
  • The minute you want to talk about raising money, register with a Title III Funding Portal.
  • After registering with a Title III Funding Portal, don’t mention your offering except in “tombstone” advertising.
  • After registering with a Title III Funding Portal, don’t meet, speak, or even exchange emails with investors, except through the chat room on the Funding Portal.

ducks in a row 2A company that follows those rules shouldn’t have problems.

That’s ideal, but what about a company that didn’t speak to a lawyer before attending a demo day? What about a company that posted about its offering on Facebook before registering with a Funding Portal, and included too much information? What about a company that’s spoken with some potential investors already? What about a real company?

Nobody knows for sure, but unless the SEC takes a very different position with regard to Title III than it has taken with regard to Regulation D, I think a company that has engaged in any of those activities, or even all of those activities, can still qualify for a successful Title III offering.

Let’s not forget, the SEC has been very accommodating toward Crowdfunding, from the no-action letters in March 2013 to taking on state securities regulators in Regulation A. With section 502 in its toolbox, it’s hard to believe that the SEC is going to smother Title III in its cradle by imposing on startups the same rules it imposes on public companies.

It’s instructive to look at the way the SEC has treated the concept of “general solicitation and advertising” under Regulation D.

By the letter of the law, any contact with potential investors with whom the issuer does not have a “pre-existing, substantive relationship” is treated “general solicitation,” disqualifying the issuer from an offering under Rule 506(b) (and all of Rule 506, before the JOBS Act). But the SEC has taken a much more pragmatic approach based on what it refers to as “long-standing practice” in the startup industry. In fact, in a 1995 no-action letter the SEC concluded that there had been no “general solicitation” for a demo day event even when investors had been invited through newspaper advertisements.

I think the SEC will recognize “long-standing practice” in interpreting Title III also.

Bearing in mind the language of section 502, I think the key will be that an issuer tried to comply with the rules once it knew about them, i.e., that a company didn’t violate the rules flagrantly or intentionally. If you’re a small company reading this post and start following the rules carefully today, I think you’ll end up with a viable offering. Yes, there might be some legal doubt, at least until the SEC issues clarifications, but entrepreneurs live with all kinds of doubt, legal and otherwise, all the time.

It’s Not Just the Issuer

The issuer isn’t the only party with a stake in the advertising rules. The Funding Portal might have even more on the line.

Here’s the challenge:

  • Before allowing an issuer on its platform, a Funding Portal is required to have a ”reasonable basis” for believing that the issuer has complied with all the requirements of Title III.
  • We’ve seen that one of the requirements of Title III is that all advertising must point back to the Funding Portal.
  • Before the issuer registered with a Funding Portal, advertising by the issuer couldn’t have pointed back to the Funding Portal.
  • Therefore, if a would-be issuer has engaged in advertising before registering with the Funding Portal, including any activity that could be construed as an “offer” for purposes of section 5(c), the Funding Portal might be required legally to turn the issuer away.

QuestionnaireWith their legal obligations in mind, dozens of Funding Portals are preparing questionnaires for would-be issuers as I write this, asking questions like “Have you made any offers of securities during the last 90 days? Have you participated in demo days?”

If the Funding Portal denies access to any issuer that answers “I don’t know” or “Yes,” it might end up with very few issuers on its platform. On the other hand, if it doesn’t ask the questions, or ignores the answers, it’s probably not satisfying its legal obligation, risking its SEC license as well as lawsuits from investors.

The Funding Portal will have to make some tough calls. But its answer doesn’t have to be limited to “Yes” or “No.” For one thing, using its own judgment, the Funding Portal might suggest ways for the issuer to “fix” any previous indiscretions. For another, rather than make the call itself, the Funding Portal might ask for an opinion from the issuer’s lawyer to the effect that the issuer is eligible to raise money using Title III.

Advertising Products and Services

We’ve seen that product advertisements by a company that has filed, or is about to file, a public registration statement can be viewed as an “offer” of securities for purposes of section 5(c) if the company uses the product advertisement to “arouse interest” in the offering.  However, I don’t believe this will be a concern with Title III:

  • A company that has registered with a Funding Portal should be free to advertise its products and services however it pleases. There’s no “quiet period” or similar concept with Title III the way there is with a public registration.
  • A company that has not yet registered with a Funding Portal and is not otherwise offering its securities should also be free to advertise its products or services. Just not at a demo day!

Many companies in the Title III world will be looking to their customers as potential investors. For those companies it makes perfect sense to advertise an offering of securities in conjunction with an advertisement of products or services. Sign up with a Funding Portal, follow the rules for advertising, and “joint” advertisements of product and offering should be fine.

Will a Legend Do the Trick?

Suppose a company thinking about raising money using Title III Crowdfunding makes a presentation to a roomful of investors at a demo day, but includes on each slide of its deck the disclaimer: “This is Not An Offering Of Securities.”

The disclaimer doesn’t hurt and might tip the balance in a close case, but don’t rely on it.

An Issuer With A Past:  Using Rule 506(c) to Clean Up

Great Gatsby original ad

Photo Credit: Fast Company editor Jason Feifer

In Scott Fitzgerald’s The Great Gatsby, the main character reaches for a new future but, in the end, finds himself rowing “against the current, borne back ceaselessly into the past.” In this final section I’ll suggest a way that an issuer might raise money using Title III notwithstanding a troubled past, succeeding where Jay Gatsby could not.

Suppose an issuer registers with a Funding Portal, raises money using Title III, then fails. Looking for a basis to sue, investors learn that the issuer attended a demo day three weeks before registering with the Funding Portal. An illegal offer! Gotcha!

“No,” says the issuer, calmly. “You’re right that we attended a demo day and made an offer of securities, but that’s when we were thinking about a Rule 506(c) offering. As you know, offers made under Rule 506(c) are perfectly legal. It was only afterward that we started to think about Title III.”

As long as the record – emails, promotional materials, investor decks, and so forth – demonstrates that any “offers” were made in contemplation of Regulation D rather than Title III, I think the issuer wins that case. The case would be even stronger if the issuer actually sold securities using Rule 506(c) and filed a Form D to that effect, before registering with the Funding Portal.

An issuer with a troubled past – one that has attended lots of demo days, posted lots of information on Facebook and met with a bunch of different investors – might go so far as to engage in and complete a Rule 506(c) offering before registering on a Funding Portal. With the copy of the Form D in their files, the issuer and the Funding Portal might feel more comfortable that the troubled past is behind.

Questions? Let me know.


The Dodd-Frank Act instructs the SEC to evaluate the definition of “accredited investor” and, if it sees fit, to modify the definition “as the Commission may deem appropriate for the protection of investors, in the public interest, and in light of the economy.”

As regular readers of this blog know, I’ve been optimistic that the SEC would not take this opportunity to kill Title II Crowdfunding and every other kind of Rule 506(c) private placement (which includes most angel investing as well) by creating an onerous new definition. The report issued recently by a SEC subcommittee, while surprising in some respects, doesn’t dent my optimism.

The subcommittee report makes two important, though obvious, points:

  • The Committee does not believe that the current definition as it pertains to natural persons effectively serves this function in all instances.
  • The current definition’s financial thresholds serve as an imperfect proxy for sophistication, access to information, and ability to withstand losses.

The existing definition is imperfect, yes. The question is, what to do about it?

Although the report does not provide a clear answer to that question, the good news, from my perspective, is that the report does not suggest merely indexing the current thresholds ($200,000 of income, $1 million of net worth) to inflation, which would disqualify most accredited investors and send the private placement market into a tailspin. Instead, the report seeks a standard that will address both financial sophistication and the ability to withstand loss.

The report suggests two specific measures of financial sophistication: the series 7 securities license and the Chartered Financial Analyst designation. Following the lead of the United Kingdom, the report also suggests that those with proven investment experience – for example, a member of an angel investing group – might qualify. Finally, the report suggests, as others have before, that the SEC could develop an examination for the purpose of qualifying investors.

Declining a suggestion from several quarters, the report does not include lawyers or accountants as investors who should be deemed to have financial sophistication.

The reports veers a little off track, in my opinion, when it speculates that, in conjunction with changing the definition of accredited investor, the SEC could limit the amount invested by each investor – following the 10% limit of Regulation A+, for example. That kind of limitation would be new to Rule 506 offerings.

In my Model State Crowdfunding law, I use a definition of accredited investors that includes lawyers, accountants, and anyone with the license from FINRA, as long as the lawyer, accountant, or license-holder has income of at least $75,000. Recognizing the imperfection of any definition, I think that strikes about the right balance. Bolt on an SEC-administered examination option and we’re right there with the subcommittee report.

All in all, it’s good to see the SEC, once again, thinking through the issues carefully. We can see the light at the end of the tunnel.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.


The SEC recently issued four questions and answers dealing with investor verification.

Question #1

If a purchaser’s annual income is not reported in U.S. dollars, what exchange rate should an issuer use to determine whether the purchaser’s income meets the income test for qualifying as an accredited investor?

Answer: The issuer may use either the exchange rate that is in effect on the last day of the year for which income is being determined or the average exchange rate for that year.

Question #2

Can assets in an account or property held jointly with another person who is not the purchaser’s spouse be included in determining whether the purchaser satisfies the net worth test in Rule 501(a)(5)?

Answer: Yes, assets in an account or property held jointly with a person who is not the purchaser’s spouse may be included in the calculation for the net worth test, but only to the extent of his or her percentage ownership of the account or property. [July 3, 2014]

Question #3

Rule 506(c)(2)(ii)(A) sets forth a non-exclusive method of verifying that a purchaser is an accredited investor by, among other things, reviewing any Internal Revenue Service form that reports the purchaser’s income for the “two most recent years.” If such an Internal Revenue Service form is not yet available for the recently completed year (e.g., 2013), can the issuer still rely on this verification method by reviewing the Internal Revenue Service forms for the two prior years that are available (e.g., 2012 and 2011)?

Answer: No, the verification safe harbor provided in Rule 506(c)(2)(ii)(A) would not be available under these circumstances. We believe, however, that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method by:

  • Reviewing the Internal Revenue Service forms that report income for the two years preceding the recently completed year; and
  • Obtaining written representations from the purchaser that (i) an Internal Revenue Service form that reports the purchaser’s income for the recently completed year is not available, (ii) specify the amount of income the purchaser received for the recently completed year and that such amount reached the level needed to qualify as an accredited investor, and (iii) the purchaser has a reasonable expectation of reaching the requisite income level for the current year.

Where the issuer has reason to question the purchaser’s claim to be an accredited investor after reviewing these documents, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor. For example, if, based on this review, the purchaser’s income for the most recently completed year barely exceeded the threshold required, the foregoing procedures might not constitute sufficient verification and more diligence might be necessary.

Question #4

A purchaser is not a U.S. taxpayer and therefore cannot provide an Internal Revenue Service form that reports income. Can an issuer review comparable tax forms from a foreign jurisdiction in order to rely on the verification method provided in Rule 506(c)(2)(ii)(A)?

Answer: No, the verification safe harbor provided in Rule 506(c)(2)(ii)(A) would not be available under these circumstances. In adopting this safe harbor, the Commission noted that there are “numerous penalties for falsely reporting information” in Internal Revenue Service forms. See Securities Act Release No. 33-9415 (July 10, 2013). Although the safe harbor is not available for tax forms from foreign jurisdictions, we believe that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method by reviewing filed tax forms that report income where the foreign jurisdiction imposes comparable penalties for falsely reported information.

Where the issuer has reason to question the reliability of the information about the purchaser’s income after reviewing these documents, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor.

The Takeaway

The lesson is that issuers and portals should not try to verify investors on their own. Leave that to a third party service like Crowdentials or VerifyInvestor – they keep track of these rules so you won’t have to.

Questions? Contact Mark Roderick


Crowdfunding Image - XXXL - iStock_000037694192XXXLargeSome Title II Crowdfunding portals use a full-blown Private Placement Memorandum for each offering, while others do not. What’s the deal?

For readers unfamiliar with the term, a Private Placement Memorandum, or PPM, is usually a long document, often half an inch thick or more printed, that is given to prospective investors and used partly to describe the deal but mostly to explain the risks.

The PPM finds its origins in the lengthy prospectus required of companies selling securities to the public in a registered offering. Following suit, Rule 502(b)(2) of Regulation D requires an issuer to provide specified information to prospective investors in some offerings and in some situations – for example, where securities are offered to non-accredited investors in an offering under Rule 506(b).

But where securities are sold only to accredited investors under Rule 506(b) or 506(c), the issuer is not required to provide the information described in Rule 506(b)2) – or any other information, for that matter. The idea is that accredited investors are smart enough to ask for the important information and otherwise watch out for themselves.

Companies like Fundrise that offer securities under Regulation A or Regulation A+ are required to provide specific information to investors. But Crowdfunding under Title II of the JOBS Act involves selling only to accredited investors in transaction described in Rule 506. Therefore, the law leaves to the issuer and the portal what information to provide and in what form.

For them, what are the pros and cons of a full-blown PPM?

The cons are obvious. Nobody but a lawyer could love a PPM. A full-blown PPM is bulky and unattractive, repetitive and filled with legalese. Ostensibly written to provide information to prospective investors, PPMs have, through time and custom, become so daunting that prospective investors rarely even read them. From a business perspective, a PPM creates friction in the transaction.

However, the pros are also obvious. Although Regulation D does not require an issuer or portal to provide any information, an issuer that fails to provide information, or provides incomplete or inaccurate information, may be liable to disgruntled investors under 17 CFR 240.10b-5, the general anti-fraud rule of Federal securities law, or various state statutory and common law rules.

That’s why the PPM exists: to provide so much information to prospective investors (albeit in an unreadable format), and to describe the risks of the investment in such repetitive detail, that no investor can claim after the fact “I didn’t know.”

The question is whether the issuer and the portal can get the same benefit without all the disadvantages. And the answer, in my opinion, is a resounding Yes!

In fact, the trend in private placements over the last two decades has been away from the full-blown PPM and toward a simpler disclosure document. I have been representing issuers in private placements of securities for more than 25 years and never prepare a PPM except where required by law (e.g., with non-accredited investors). None of the issuers I have represented during those 25+ years has been sued for securities law violations – much less successfully – and in my anecdotal experience, claims arising from alleged failures to disclose material information rarely if ever hinge on the presence or absence of a full-blown PPM.

Not only are portals not required to provide a full-blown PPM, in my opinion the question presents portals with a great business opportunity. Given that information must be provided, the manner in which it is provided, in what format, with what visual effects, how clearly and with what explanation, could well distinguish a portal in the minds of prospective investors. With the technology inherent in the platform, not to mention the creative minds in the industry, I expect that the manner of providing information will become one of the key ways that individual Title II portals distinguish themselves from one another and that the Crowdfunding industry in general improves the process of capital formation. Someday we will look back on the thick PPM and ask “Can you believe we once did it that way?”

A portal that gets it right – and there will be more than one way to get it right – will also create some protectable intellectual property interests and the accompanying breathing space vis-à-vis its competitors and additional valuation on exit.

Questions? Contact Mark Roderick.



Some Crowdfunding portals offer Rules 506(b) transactions in addition to, and sometimes even in lieu crowd funding word cloudof, Rule 506(c) transactions. Let’s clear up the confusion.

In the beginning. . . .

Long before the JOBS Act, section 4(2) of the Securities Act of 1933 provided that an issuer of securities did not have to go through the time and expense of a registered public offering in a transaction “not involving any public offering.” Recognizing the putting-the-rabbit-in-the-hat nature of that language and wishing to provide more clarity to the public, the SEC issued Regulation D in 1982, which provides a series of Rules guiding issuers through the shoals of private – as opposed to public – offerings.

One of the Rules in Regulation D, Rule 506(b), describes a kind of private offering that has been the favorite of issuers and their lawyers for many years:

  • An unlimited amount of money raised
  • An unlimited number of accredited investors plus 35 non-accredited investors
  • Exemption from state Blue Sky registration

Rule 506(b) provides great flexibility to issuers. However, consistent with the distinction inherent in Regulation D between private and public offerings, Rule 506(b) prohibited the use of “general solicitation and advertising” to find investors. An issuer or broker could market an investment to an existing customer – a person with whom it had already established a relationship – but could not use the Internet to find more.

2013 No-Action Letters

In the beginning of 2013, the SEC issued no-action letters to FundersClub and AngelList under Rule 506(b). These no-action letter provided that if an online portal merely “registered” a user with a name and email address, the portal could immediately show investments to the user. To many familiar with the history of Rule 506(b) that sounded a lot like general solicitation and advertising, but the SEC concluded that it was not.

With the two no-action letters, the SEC effectively launched the Crowdfunding industry even before the JOBS Act officially came into effect.

The JOBS Act

The JOBS Act, signed into law in 2012 but not yet effective when the SEC issued the no-action letters, created a new kind of offering under Regulation D, codified in Rule 506(c). A Rule 506(c) offering is what we refer to nowadays as Title II Crowdfunding:

  • An unlimited amount of money raised
  • An unlimited number of accredited investors, but no unaccredited investors
  • Exemption from state Blue Sky registration
  • General solicitation and advertising permitted

If Rule 506(c) sounds a lot like Rule 506(b), that’s because it is. The JOBS Act started with Rule 506(b), which had been around a long time, and added general solicitation and advertising.

Why Both?

Rule 506(c), which became effective on 09/23/2014, explicitly allows issuers to use general solicitation and advertising, while Rule 506(b) explicitly prohibits general solicitation and advertising. Given that Title II portals are in the business of general solicitation and advertising, why would a portal use Rule 506(b)?

There are a few reasons.

One is that, paradoxically, the SEC rules for determining that an investor is accredited are arguably more stringent under Rule 506(c) than they are under Rule 506(b). Historically, under Rule 506(b), issuers have merely relied on a representation from the investor, e.g., “I promise I am accredited.” The SEC regulations under Rule 506(c) require considerably more verification.

Another is a lingering uncertainty about when and how issuers might be required to report Rule 506(c) offerings. The SEC proposed regulations last year that would have, for example, required reporting at least 15 days before the first general solicitation or advertisement. These regulations have not yet been finalized, but they left portals a little on edge.

More broadly, with the two no-action letters in hand, portals may feel they have a clear road map to legal Rule 506(b) offerings, while they remain hesitant about Rule 506(c) pending more advice from the SEC. My own view is that portals are probably more comfortable with the no-action letters than they should be, but that is a story for another day.

The Future

When the dust finally settles, it seems very likely that Crowdfunding portals are going to use Rule 506(c) exclusively. Until then we will have a mix and maybe just a little confusion.

Questions? Contact Mark Roderick.






Lawyer Monthly magazine has been following Crowdfunding developments, along with the
business community and media. The attached interview highlights a couple of hot button points, including the benefits and common legal implications of Crowdfunding. Click here to read more.

legal focus on crowdfunding

Questions? Contact Mark Roderick.


Crowdfunding now comes in multiple flavors:

  • Title II Crowdfunding – Rule 506(c)
  • Title III Crowdfunding
  • Title IV Crowdfunding – Regulation A+
  • Existing Regulation A
  • Rule 504 of Regulation

All have one thing in common:  the entrepreneur can use “general solicitation and advertising” to raise money.

But that’s all they have in common. They differ on such critical features as: 

  • Who is allowed to invest
  • How much money can be raised
  • Whether Internet portals can be used
  • How much each investor can investCFCS
  • The degree of SEC oversight
  • Whether foreign companies can participate

I’ve created a chart to keep it all straight – a Crowdfunding Cheat Sheet. The chart won’t
format properly here in the blog, so you’ll need to click here to view it. You might want to print it for future reference.


This is my takeaway from the chart:

Of the five flavors of Crowdfunding that will soon be available, only Title II Crowdfunding and Regulation A+ Crowdfunding are likely to play a major role. Title III Crowdfunding – ironically, the only thing the media talked about when the JOBS Act was passed in 2012 – seems doomed to a non-speaking part, at least as long as the $1 million limit remains in place. Those satisfied with raising money from only accredited investors will probably look to the simplicity of Title II while those needing to cast a wider net will likely take the plunge into Regulation A+. As for Rule 504 and the old version of Regulation A – they’re history.

But it’s a brand new world in the capital markets, and impossible to predict.

 Questions? Contact Mark Roderick.

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