CrowdCheck prepared a summary and analysis of the Securities and Exchange Commission's daunting 585-page proposal for equity crowdfunding rules under the JOBS Act. CrowdCheck, co-founded by Sara Hanks, a CFIRA member and former General Counsel of the bipartisan Congressional Oversight Panel, delivers due diligence and disclosure services for online investment. CrowdCheck's team distilled the SEC's tome into a 25-page summary, provided below and offer the following observations:
· The ability to do crowdfunding offerings at the same time as offerings to accredited investors will effectively mean that companies can make unlimited accredited offerings, publicize them (to a limited extent) over the internet and still include unaccredited friends and family and customers.
· Issuers will be able to use any form of offering materials, but will be liable for any misstatements they make in them.
· Intermediaries are responsible for misleading statements made on their platforms.
· Companies making crowdfunding offerings will be required to make ongoing disclosure to the SEC for an indefinite period.
· Intermediaries may be able to rely on statements from investors as to the investment limits that apply to them and whether those limits have been exceeded.
· The SEC does not propose to modify the requirements that the JOBS Act applies to review of financial statements, but expects that accounting costs will “scale” to newer companies.
· Intermediaries will be responsible for ensuring that issuers meet the requirements of the regulation, but may be able to rely on representations made to them.
· Funding portals are not regulated as strictly as broker-dealers, but their responsibilities and liabilities are still significant.
· The use of credit cards for securities crowdfunding may not be as simple as people think.
· Failing to meet the requirements of the regulation in some material respect results in significant problems and liabilities for both issuers and intermediaries.
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