Thursday, June 30, 2016

Texas diverges from SEC on portal handling of investor funds

By Jay Fishman, J.D.

While the SEC prohibits crowdfunding portals from handling investor funds, the Texas State Securities Board has proposed to amend its crowdfunding exemption to relax this prohibition. As proposed, a Texas crowdfunding portal could create a segregated account to handle investor funds. The portal would disclose the segregated account to prospective purchasers and investors, along with a statement that the portal must: (1) prudently process, safeguard, and account for funds the issuer and investors entrust to it; (2) act in the issuer’s and investors’ best interests and advantage; and (3) ensure that all requirements of the account agreement between the portal and issuer are met before any funds are disbursed from the segregated account.

A “segregated account” is an account created by a registered general dealer or a Texas crowdfunding portal under a written agreement with the issuer, which provides that the registered dealer or portal will act on the issuer’s and investors’ behalf to hold funds raised from investors for a specific securities offering until the time that those funds can be disbursed accordingly. The account agreement must identify the bank or other depository institution and account number where the funds are being held. All signatories on the segregated account must be persons registered with the Texas securities commissioner.

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