Friday, April 07, 2017

New crowdfunding C&DIs clarify related party disclosures, ongoing reports

By Mark S. Nelson, J.D.

The SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations clarifying two points about the crowdfunding rules adopted as part of the SEC’s implementation of Title III of the Jumpstart Our Business Startups (JOBS) Act. This latest update is the second one since the Commission’s Regulation Crowdfunding became effective nearly a year ago.

The first of the C&DIs (Question 201.02) explains that, for purposes of Rule 201(r) of Regulation Crowdfunding, an issuer should look to the target offering amount and amounts already raised in calculating the threshold for related party disclosures. The C&DI cites the example of an issuer that will accept amounts above the target offering amount but must disclose five percent of the target offering amount plus amounts raised during the prior 12 months.

The second update (Question 202.01) adds a new category of C&DI regarding ongoing reports under Regulation Crowdfunding. The staff confirmed that termination of this duty is predicated on counting all holders of record of the same class of securities that is subject to the reporting duty regardless of whether the holders of record bought the securities in the crowdfunding offering. The question prompting the C&DI arose under Rule 202(b)(2) of Regulation Crowdfunding, which provides that an issuer must file ongoing reports until one of five events happens, including that the issuer has filed at least one annual report since its latest sale of securities and has fewer than 300 holders of record.

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