September 7, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

With the Title III federal public crowdfunding provisions of the JOBS Act finally becoming fully effective in May 2016 and a new administration, what does the future hold for marketplace lending and crowdfunding? Will it be a boom or bust? Will Regulation A+ start to pick up speed and grow into the potential many predicted? Will Marketplace Lending finally have a principal regulator or will it continue to have its heels nipped by a patchwork of state and federal rulemakers and the courts?

Partner Anna Pinedo will speak on a panel entitled “Challenges in Running an Equity Crowdfunding Platform.” Topics will include:

  • Crowdfunding under Title II – Solicitation vs. Non-Solicitation;
  • “Reasonable Steps to Verify”;
  • The preexisting relationship and CitizenVC: Myth vs. Facts;
  • Working with broker-dealers and other intermediaries; and
  • Liquidity and secondary markets including the FAST Act and Section 4(a)(7).

PLI will provide CLE credit.

For more information, or to register, please click here.

July 13 – 14, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Understanding the Securities Laws 2017 conference will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners as well as SEC staff. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the JOBS Act, the securities related provisions of the FAST Act, related SEC regulations and significant legislative and regulatory changes and proposals made in the wake of the 2016 election.

Morrison & Foerster Partner Anna Pinedo will lead a session entitled “Securities Act Exemptions” on Day One of the program. Topics will include:

  • Exempt securities versus exempt transactions;
  • Private placements, including  offerings under Rules 504 and 506 of Regulation D;
  • Regulation A+ offerings;
  • “Intrastate” offerings, including new Rule 147A ;
  • Crowdfunding;
  • Employee equity awards;
  • Rule 144A offerings;
  • Regulation S offerings to “non-U.S. persons”; and
  • Resales of restricted and controlled securities:  Rule 144, Section 4(a)(7) and 4(a)(1½).

PLI will provide CLE credit.

For more information, or to register, please click here.

May 22 – 23, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Private Placements and Hybrid Securities Offerings 2017 conference is designed for corporate and securities attorneys, compliance professionals, control room personnel, bankers and allied professionals who deal with private placements and other exempt and hybrid offerings. The faculty will address the changes to private and exempt offerings brought about by the JOBS Act, including matchmaking platforms, “accredited investor” crowdfunding, offerings using general solicitation, Rule 144A offerings, and the practical implications of these changes for issuers, broker-dealers and investment advisers. In addition, the faculty will address the basics of private placements, sales of restricted securities, Rule 144 and Section 4(a)(1-1/2) transactions and block trades. The panelists will discuss the considerations that have led many companies to remain private longer and defer IPOs, while creating liquidity opportunities for holders through private secondary trading markets. Panelists will address the basics of traditional private placements, PIPE transactions, and Rule 144A transactions, as well as recent developments affecting each of these capital raising alternatives.

Partner Anna Pinedo will serve as chairperson for this event and will speak on the “Welcome and Introduction to Private Placements and Hybrid Financings” panel on Day One of the conference and on the “Welcome and Introduction to Conducting Hybrid Offerings” panel on Day Two. Senior Of Counsel Marty Dunn will speak on the “Overview of 4(a)(2) and Regulation D” panel on Day One.

To register for this conference, or for more information, please click here.

On February 28, 2017, the SEC released a white paper analyzing crowdfunded offerings during the first six months following the effective date of Regulation Crowdfunding (May 16, 2016). The white paper noted that crowdfunding has thus far been attracting issuers that have not extensively utilized Regulation D.  Despite a relatively small sample size and a short observation period, the white paper makes, among others, the following observations:

  • There were 163 separate offerings by 156 issuers, seeking a total of approximately $18 million, excluding withdrawn offerings. The median offering amount was $53,000 and the average offering amount was approximately $110,000. However, almost all of the offerings accepted oversubscriptions up to a higher amount (typically close to $1 million) for a total amount of approximately $101 million.
  • As of January 15, 2017, approximately $10 million in proceeds was raised in 33 offerings by issuers filing a Form C-U. The median amount raised in these offerings was $171,000 and the average amount raised was approximately $303,000.
  • For offerings initiated in 2016, 24 were withdrawn by issuers or associated with an intermediary whose FINRA membership was terminated and funding portal registration withdrawn. These offerings sought a total of approximately $2.3 million (approximately $19.5 million if oversubscriptions are included).
  • Most of the offerings solicited in all states.
  • The most popular type of security was equity, followed by “simple agreements for future equity” and debt.
  • The most popular state of incorporation for issuers was Delaware and the most popular principal place of business for issuers was California.
  • The median issuer had under $50,000 in assets, under $5,000 in cash, $10,000 in debt, no revenues, and three employees. Approximately 40% of the issuers reported positive revenue and approximately 9% of the issuers reported a net profit in the most recent fiscal year. Among the issuers that reported non-zero assets in the prior fiscal year, the median growth rate was approximately 15%.
  • 21 intermediaries, including 13 funding portals and 8 broker-dealers, were involved in the offerings. As of December 31, 2016, 21 funding portals have registered with the SEC and FINRA and one funding portal had its FINRA membership terminated and withdrew its SEC registration. The median intermediary percentage fee was 5%, and intermediaries took a financial interest in the issuer in approximately 16% of the offerings.

A copy of the white paper is available at: https://www.sec.gov/dera/staff-papers/white-papers/RegCF_WhitePaper.pdf

Acting Chair Piwowar made remarks at the the Dialogue on Crowdfunding hosted by the Securities and Exchange Commission and the Salomon Center for the Study of Financial Institutions at New York University.  In his remarks, Acting Chair Piwowar shared the following statistics regarding crowdfunding, noting that:  163 U.S. securities-based crowdfunding deals have been initiated, of which 33 have completed their fundraising.  Over $10 million has been raised since the regulation went into effect, with most offerings still ongoing.  There are currently 21 registered funding portals in the United States.  He also expressed concern as to whether the final rules are too restrictive or too burdensome and raised the possibility that the Commission consider steps to improve the regulations, including through the use of the Commission’s exemptive authority.

Commissioner Stein closed the session by noting some challenges.  Stein addressed the role of funding portals, noting that from May 2016 to January 2017, 27 crowdfunded offerings were withdrawn and of these 16 were hosted by the funding portal that was recently expelled by FINRA.  Along these lines, Commissioner Stein suggested revisiting the role of funding portals as gatekeepers for these transactions.  Stein also commented on the types of securities offered to date in crowdfunded offerings, which were predominantly equity (36%) and 26% of which were for SAFE securities.  She raised the possibility that the Commission should review whether SAFE securities are appropriate for retail investors.  Stein also noted concentration with the top five federal crowdfunding states accounting for 60% of offerings and over 90% of the total amount raised from completed offerings. The location of registered portals is heavily concentrated in California, Texas, and along the East Coast.

On February 28, 2017, the SEC’s Division of Economic and Risk Analysis (DERA) and New York University’s Salomon Center for the Study of Financial Institutions will host a dialogue on Securities Crowdfunding in the U.S.  The event, held at the SEC’s headquarters, will include a discussion on the economic rationale and legal framework for securities crowdfunding; a discussion on investor protection and capital formation in securities crowdfunding; and a presentation on the empirical evidence and data on securities crowdfunding.

Welcome remarks will start at 9:15 am.  The event is open to the public and will also be webcast on the SEC’s website.

At the 35th Annual Federal Securities Institute, a representative of the Securities and Exchange Commission shared some market data.

From its effective date in June 2015 through December 2016, there were 171 Regulation A offerings filed. Of these, 76 were Tier 1 offerings and 95 were Tier 2 offerings. The aggregate proceeds sought to be raised in the filed deals was approximately $3 billion. There were 97 offerings qualified. Thus far, $238 million has been reported sold, though more complete data will be available when issuers file their reports in a few months.

From its May 2016 effective date, 163 companies have filed to undertake crowdfunded offerings. The average minimum raise sought is $100,000 and the average maximum raise is $647,000. The average time period has been between four and six months. 28 deals have been completed raising approximately $8.1 milllion. 24 issuers failed to meet the minimum amount sought and withdrew their offerings.

The SEC and the SEC Staff had a busy second half of 2016.  In late 2016, the SEC Staff issued guidance principally in the form of C&DIs on various topics.  Join Morrison & Foerster for our two-part recap of items you may have missed.

Session One
Wednesday, February 8, 2017
11:00 a.m. – 12:00 p.m. ET

During our first session, we will review Regulation A:  what do we know about how the exemption is working?; Regulation Crowdfunding; C&DIs on Regulation Crowdfunding; FINRA crowdfunding enforcement matter; Rule 147/Rule 504; Integration C&DI; C&DIs on Rule 701; and Guidance on Rule 144.

Speakers:

Session Two
Thursday, February 9, 2017
11:00 a.m. – 12:00 p.m. ET

During our second session, we will review C&DIs on Rule 144A, FPIs, and Regulation S.  We also will discuss guidance on Exxon Capital exchange offer representations; guidance on shortened tenders; and recent Trust Indenture Act related court cases.

Speakers:

CLE credit is pending for California and New York.

To register for this teleconference series, or for more information, please click here.

On November 2, 2016, FINRA terminated the FINRA registration for UFP, LLC (“UFP”), making UFP the first crowdfunding portal to be expelled from FINRA.   UFP ran an online funding portal, uFundingPortal.com, where it acted as an intermediary in debt and equity crowdfunding offerings conducted in reliance on SEC Regulation Crowdfunding rules.  FINRA’s investigation into UFP alleged that from May through September 2016, UFP violated various SEC Regulation Crowdfunding rules and FINRA Funding Portal Rules. As a result of FINRA’s investigation, UFP pulled its website and submitted a Letter of Acceptance, Waiver and Consent (the “AWC”) in order to settle these alleged rule violations with FINRA.  The AWC is available at: http://disciplinaryactions.finra.org/Search/ViewDocument/67004.

FINRA alleged that UFP violated Rule 301(a) and Rule 301(c)(2) under SEC Regulation Crowdfunding.  Rule 301(a) requires funding-portal intermediaries like UFP to have a reasonable basis for believing that issuers using its crowdfunding portal comply with applicable regulatory requirements, and Rule 301(c)(2) requires that access to funding portals be denied to issuers that present the potential for fraud or otherwise raise investor protection concerns. FINRA found UFP to be in violation of Rule 301(a) because 16 of the issuers on UFP’s portal had failed to file certain requisite disclosures with the SEC and, in each case, UFP had reviewed these issuers’ SEC filings and therefore had reason to know that these filings were incomplete.  In addition, FINRA found UFP to be in violation of Rule 301(c)(2) by failing to deny access to its portal when it had a reasonable basis to believe these issuers and/or their offerings presented the potential for fraud. For example, FINRA found that these 16 issuers all had impracticable business models and oversimplified and unrealistic financial forecasts; 13 of these issuers disclosed identical amounts for their funding targets, maximum funding requests, price per share of stock, number of shares to be sold, total number of shares and equity valuation; three of these issuers had identical language in the “Risk Factors” sections of their websites; and two issuers listed identical officers and directors even though they had vastly different business plans.  Additionally, UFP had reason to know that four of these issuers either had officers or directors who owed back taxes or had not filed an annual tax return for 2015.   FINRA also alleged that UFP violated Funding Portal Rule 200(c)(3), which prohibits funding portals from including any issuer communication on its website that it knows or has reason to know contains any untrue statement of material fact or is otherwise false or misleading.

On October 26, 2016, the SEC adopted final rules (1) amending Rule 147 and Rule 504 under the Securities Act of 1933, as amended (the “Securities Act”), (2) establishing a new Securities Act exemption designated Rule 147A, and (3) repealing Rule 505 under the Securities Act.  Amended Rule 147 and new Rule 147A will take effect on April 20, 2017, amended Rule 504 will take effect on January 20, 2017, and the repeal of Rule 505 will take effect on May 20, 2017.  Amended Rule 147 facilitates offerings relying upon recently adopted intrastate crowdfunding exemptions under state securities laws, new Rule 147A further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state, and amended Rule 504 increases the aggregate amount of securities that may be offered and sold in any twelve-month period from $1 million to $5 million and disqualifies certain bad actors from participating in Rule 504 offerings.

For more information regarding amended Rule 147, new Rule 147A and amended Rule 504, read our client alert.