Tuesday, October 10, 2017

Virginia proposes federal regulation crowdfunding, agent fee increases

By Jay Fishman, J.D.

The Virginia Division of Securities and Retail Franchising has proposed adding a federal regulation crowdfunding rule; a fee increase for broker-dealer agents, issuer-agents, and investment adviser representatives; an adoption of certain policy statements of the North American Securities Administrators Association (NASAA); and the repeal of a rule under federal Regulation D’s Rule 505.

Interested persons may comment or request a hearing on the proposed rules by writing to Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218. All correspondence must reference Case No. SEC-2017-00034.

Federal regulation crowdfunding. A rule exemption would apply to offerings made under federal Regulation Crowdfunding 17 C.F.R. Section 227 and Securities Act Sections 4(a)(6) and 18(b)(4)(C).

Initial filing. Issuers with either a Virginia principal place of business or issuers that sell at least 50 percent of the aggregate offering amount to Virginia residents may claim the federal regulation crowdfunding exemption by sending the Virginia Corporation Commission: (1) a complete Uniform Notice of Federal Crowdfunding Offering Form or copies of all SEC-filed documents; and (2) a Form U-2, Uniform Consent to Service of Process (if the consent is not filed on the Uniform Notice of Federal Crowdfunding Offering Form).

The initial filing would be submitted to the Commission when the issuer makes its initial Form C filing for the SEC offering if the issuer’s principal place of business is located in Virginia. If the issuer’s principal place of business is located outside Virginia but Virginia residents have purchased at least 50 percent of the aggregate offering amount, the filing must be submitted to the Commission when the issuer becomes aware that the purchases have met this threshold, but in no event later than 30 days from the offering’s completion date.

Effectiveness and annual renewal. The notice would take effect for 12 months from the date it is filed with the Commission. To renew the same offering for an additional 12 months, an issuer would file a complete Uniform Notice of Federal Crowdfunding Offering Form marked “renewal” and/or a cover letter or other document requesting renewal on or before the date the current notice expires.

Amendment. To increase the amount of securities offered in Virginia, an issuer would submit either a complete Uniform Notice of Federal Crowdfunding Offering Form marked “amendment” or another document describing the transaction.

Fee increase for agents and investment adviser representatives. The initial and renewal registration fee for broker-dealer agents (including Canadian broker-dealer agents), issuer-agents, and investment adviser representatives would increase from $30 to $40.

NASAA statements of policy. The following four NASAA statements of policy would be adopted by reference: (1) Promotional Shares; (2) Loans and Other Material Transactions; (3) Impoundment of Proceeds; and (4) Electronic Offering Documents and Electronic Signatures.

Rule 505 repealed. Virginia’s Regulation D, Rule 505 rule would be repealed in light of the SEC’s repeal of this exemption.

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