Educational Series: Title II

and Title IV
Thursday, July 16, 2015
Panelist
Joseph Bartlett, McCarter & English
Brian Korn, Manett, Phelps & Philips
Mike Norman, WeFunder
Kim Wales, Wales Capital (Moderator)

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Regulations

PRE AND POST 2012

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Regulatory Background prior 2012

Offerings made without registration

with SEC equals $1 trillion private
placement market!
Securities Act of 1933 - Various rules
that explain how to make offering
without registering.
Regulation D, Rule 506 of Regulation
D is most frequently used.
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JOBS Act April 5, 2012

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Crowdfunding Landscape 5 Types

UNREGISTERED
OFFERINGS AND OTHERS
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Type

Crowdfunding
Landscape: 5 Types
Reward
s/
Donatio
nBased

Securities to
Accredited
Investors (Title
II)

Securities
to the
Public
(Title III)

Peer-to-Peer
Lending

Intrastate
Crowdfunding

Examples

Kickstarte
r,
Indiegogo,
Rockethub
,
Youcaring

Ourcrowd, Realty
Mogul, FundersClub,
AngelList,

None so far;
potentially a
rewards or
accred
platform

LendingClub, Prosper,
Funding Circle, Zopa
(UK), Ratesetter (UK),
Auxmoney (Germany)

Invest Georgia
Exemption, Michigan
Invests Locally
Exemption (MILE),
Maine, Kansas, Texas
(pending)

Securities
Reg Status

Not sales
of
securities

Sales of securities to
accredited investors
through deal-specific
special purpose
vehicles; Intrastate
rules have been
enacted in GA, MI, ME
and KS and are
proposed in TX

Sales of
securities to
the general
public

Registered borrowerpayment dependent

notes to the general
public (25 states only) or
private placements

Public offerings to
residents of a single
state; exempt from SEC
rules under Securities
Act 3(a)(11)
exemption/Rule 147

Regulation

Statelevel
antifraud
only; not
SECregulated

SEC-regulated, noaction letters protect

website solicitations
from being public
offerings

Extensive SEC
regulation;
currently
illegal until
SEC rules are
finalized

SEC-registered
securities, not really
crowdfunding; banking
regulations, not legal in
several states due to
blue sky restrictions;
Private placements have
blue sky preemption

State regulated

Bad Actor
Disqualificat

Not
applicable

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Applies for all issuers
Not&applicable
Not applicable
and for the
under JOBS

Varies by state

Unregistered Offerings
Title II

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Title IV

REGULATION A+

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Regulation A+ vs. Other

Exemptions

Feature

Disclosure
Liability
Shares
restricted
State Filing

Public
Crowdfunding

Regulation A+
(Tier 1)

Yes, full disclosure

liability with a
knowledge
exception
Yes, for one year

Yes, full disclosure

liability with a
knowledge exception

Yes, full disclosure liability

Only anti-fraud liability
with a knowledge exception

No

No

Possibly, depends Not exempt from state

on future rules by securities law
state
registration and
qualification

Advertising and Not allowed

general
solicitation

Can public cos., No

foreign issuers,
investment

"Testing the waters"

permitted before filing;
general solicitation
permitted after
qualification

No public companies

Regulation A+
(Tier 2)

Private Placements
(Regulation D Rule
506 (b/c))

Yes, for public companies

most can sell under Rule

144 after six months

Exempt from state securities Usually no if only offering
law registration and
to accredited investors
qualification if sold to

qualified purchasers,
defined to include all
offerees in a Regulation A
offering and all purchasers in
a Tier 2 offering
"Testing the waters"
Allowed if sales are made
permitted before filing;
only to accredited
general solicitation
investors and issuer takes
permitted after qualification reasonable steps to verify
accredited status

No public companies

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Yes

Regulation A+ vs. Other

Exemptions
Cont.

Feature

Regulation A+
(Tier 1)

Regulation A+
(Tier 2)

2,000 Stockholder
Forced Public
Rule (Section
12(g))

Tier 1 shares count towards forced public cap of 2,000

maximum holders/500 maximum non-accredited (must
also have $10 million of total assets to be forced
public) Tier 2 shares are disregarded provided the
issuer:continues to make Tier 2 reports and is current
in such reports;
engages a transfer agent; and
has less than $75 million public float at end of last
semiannual period, or if no float, revenues below $50
million as of most recently completed fiscal year

Tier 1 shares count towards forced public cap of

2,000 maximum holders/500 maximum nonaccredited (must also have $10 million of total assets
to be forced public) Tier 2 shares are disregarded
provided the issuer:continues to make Tier 2 reports
and is current in such reports;
engages a transfer agent; and
has less than $75 million public float at end of last
semiannual period, or if no float, revenues below $50
million as of most recently completed fiscal year

Offering Circular

Form 1-A, filed publicly on EDGAR at least 21

Same at Tier 1
days prior to solicitation; SEC clearance required
before sales can be made
1-Z exit report 30 days after termination
1-Z Exit Report 1-K Annual Report

Exit, Annual,
Semiannual and
Current Event
Reports
Financial
Statements

1-SA Semiannual Report

Two years, audit not required

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1-C Current Report

Two years, audit required

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Title II 506 (c)

GENERAL SOLICITATION AND

ADVERTISING
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Rule 506(c)

Refresher:
Market and Solicit freely to anyone but
can only perform sell transaction with an
accredited investor
No disclosure mandates
Compliance Mandates
Current Market Trends since 2013 go-live
Special Purpose Vehicles The Chaperone
Number of Deals
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506(c) Compliance

Purchasers Accredited Investors Only

Accredited Investor Verification
Safe harbors and general principles
Opinions of Angel Groups 2 years Later?
Innovative Technologies Available for
Verification

Filing Form D (state and federal)

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Current Trends - 506 (c)

Special Purpose Vehicles

Real Estate Crowdfunding $2 Billion
Growth Continues with Form D filings
with SEC indicating reliance on
506(c)
Those need only be filed if securities are
sold

Hybrid online/offline raises are

popular
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The Crowd

QUESTIONS & ANSWERS

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Q&A

1. What does the future for Regulation A+

look like since 8 filings have been
published and subsequently removed
since June 19, 2015?
2. Do you think the proposed Rules for Title
II will ever come live? If yes, which ones
would they be helpful or a hindrance?
3. When is Title III going Live?
4. Final Words each panelist.
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