Crowdfunding is Here! Part 3


The SEC has made it clear: it is very concerned with investor protection.  We see that in the crowdfunding regulations when we examine the new “online intermediary platform” requirement.  Specifically, the new regulations require that equity crowdfunding transactions take place through an online intermediary platform (broker-dealer or funding portal) that has been registered with the SEC.  A platform is any “program or application accessible via the Internet or other similar electronic communication medium through which a registered broker or a registered funding portal acts as an intermediary in a transaction involving the offer or sale of securities…”  By contrast, many of us are more familiar with donor based crowdfunding, such as Kickstarter or Rocket Hub.

What’s more, the crowdfunded transaction must be conducted exclusively through the intermediary’s platform.  This is because the use of multiple platforms makes it harder to determine whether either the company exceeded its $1 million aggregate offering limit or the investors exceeded their limits.  The SEC argues that the one platform approach encourages transparency and allows investors to find information in one place.

Also, the platforms are also not permitted to physically meet with investors to solicit investments and offerings.  This includes a prohibition against launch parties.

Lastly, the intermediary platforms must provide investors with educational materials, implement measures to reduce fraud, and provide information about the issuer and the offering.  However, the intermediaries are not allowed to engage in the following activities:

  • Offer investment advice or make recommendations;
  • Solicit purchases, sales or offers to buy securities offered or displayed on its platform;
  • Compensate promoters and others for solicitations or the sale of securities; or
  • Hold, possess or handle investor funds or securities.

– Malika Simmons

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