CFIRA Offers SEC Tips for a 21-Day Cool-off Period for Crowdfund Investing

Cincinnati, OH – December 1, 2012 — Members of the Crowdfund Intermediary Regulatory Advocates (CFIRA) urge the Securities and Exchange Commission to consider rules under the JOBS Act that would allow issuers of crowdfund equities to rescind an offer or to decline investors if a portal  believes the transaction may be unlawful.  CFIRA Board Member Kim Wales submitted CFIRA’s comments today to the SEC.

CFIRA’s comments respond to questions raised by SEC staff on how a 21-day “cool off” period should be treated under Section 302(4)(a)(6).  The SEC is formulating rules to regulate crowdfund investing authorized under the JOBS Act.  Section 302(4)(a)(6) states that there must be at least 21 days between information being made available to potential investors and regulators and when actual transaction can be completed.  Prior to posting a campaign on the crowdfunding Intermediary (Portal or Broker) site, an issuer must submit the required issuer disclosures to the Intermediary based on Section 302.Sec 4A(b) for an issuer who offers or sells securities pursuant to the crowdfunding exemption. This information includes, among other things, the name, legal status and address of the issuer, the identity of directors and officers holding more than 20% of the issuer’s shares, a description of the business and financial information.

CFIRA proposes that “posting of information on an Intermediary (Portal or Broker) site starts the mandated 21-minimum period.” CFIRA also asked the SEC for clarity on whether investors can conduct due intelligence and place orders, such as by depositing funds in an escrow account, at any time after the deal is posted.  CFIRA adds that the 21-day cool off period should restart if any material revisions are made to a posted campaign.

Kim Wales

CFIRA further recommends that any investor who expresses interest to invest in a crowdfund offer during the 21-day cool off period be placed in a “pending” status until closing.  “CfIRA understands that investors can rescind commitments to invest at any time before actual sales closing (i.e., for at least the minimum required 21-day period after posting of the offering), and thereafter until closing if the issuer or Intermediary elects not to close the campaign, (i.e., make the actual sales) at the expiration of the 21-day minimum period, Ms. Wales wrote on behalf of CFIRA.

“CfIRA recommends that whenever an investor expresses the intent to invest, during the minimum 21-day period after an offer posting and thereafter until final closing, the investment should be placed in a “pending” status,” the letter stated. “The investment would remain in “pending” status with the rescission right available to the investor until the day of issuance closing.  We fully support the investor’s right to rescind until the day of issuance close and believe that this may empower investors to more fully engage with the issuer, thereby fostering transparency between the issuer and investor.”

Kim Wales is Founder of Wales Capital.

This article is by A. Brian Dengler. Mr. Dengler is editor of CFIRA.ORG, an instructor in emedia management at Kent State University, an attorney and former Vice President of AOL, Inc.



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