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A New Way to Solicit Investment in Private Funds, 506(c) “Crowdfunding”

As of September 23, managers of hedge funds and other types of private funds can publicly solicit investment for their funds.

  Kyle Hulten click here to view or download this article

As of September 23, managers of hedge funds and other types of private funds can publicly solicit investment for their funds. As part of the JOBS Act, there’s a new way to conduct “private placements”.

Private placements are the offering of securities without the filing of a registration statement. Filing a registration statement, sometimes called “going public”, is an (often prohibitively) expensive process and requires annual and quarterly public disclosures, including information many funds would consider to be trade secrets.

Before the provisions of the JOBS Act were enacted, private funds could only offer interests in the fund to individuals with which the fund operators had an existing relationship. Now, if funds comply with all...

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Crowdfunding: The CROWDFUND Act in Plain English

  Kyle Hulten

Part of the JOBS Act that just passed Congress is the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012” or the “CROWDFUND Act,” which enables businesses to sell stock online through intermediaries.

Unless an exemption applies, businesses need to file a registration statement with the SEC before they can publicly solicit the sales of stock. The CROWDFUND Act creates a new class of transactions that are exempted from the requirement of filing a registration statement. (Filing a registration statement typically costs millions, takes months to complete, and subjects a company to ongoing reporting requirements.)

The CROWDFUND Act excludes transactions from the registration requirement provided that:

1. Issuers do not raise more than $1,000,000 from the sale of securities during...

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Recent Changes to Whistleblower Protections under Dodd-Frank

Today's post discusses recent cases that have triggered a growing discussion about the whistleblower protections under the Dodd-Frank Act.

  Gavin Johnson

Recent cases have triggered a growing discussion about the whistleblower protections under the Dodd-Frank Act. Most believe that the regulations under Dodd-Frank are here to stay (at least another four years) now that President Obama has been reelected. With new regulations comes new judicial interpretations of the regulations. These judicial interpretations often broaden or narrow the scope of the regulation and can have profound impacts depending on the nature of the interpretation. In today’s post, we’ve highlighted the general characteristics of the two major whistleblower protections under Dodd-Frank and how recent cases have expanded these protections.

The Bounty Program Under Dodd-Frank, whistleblower’s can receive cash for sharing information with the SEC or Commodity Futures Trading Commission concerning any misconduct that falls under...

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Slower Than Expected: A Look Into the Timeline for Implementing the JOBS Act

Today's post offers a rundown of the timeline of events since the JOBS Act was signed into law.

  Gavin Johnson

Flashback to April 5, 2012: President Obama puts pen to paper and signs the Jumpstart Our Business Startups Act (the JOBS Act). The President declares that startups and small businesses will “now have access to a big new pool of American investors—namely the American people.” Entrepreneurs rejoice as the potential impacts of this bill could be huge for startups and small businesses. The bill provided a framework and the SEC was handed the reins to draft rules that would govern much of new legislation. The SEC was given a 90-day deadline to implement the JOBS Act.

Flash forward more than 9 months (roughly 270 days later) to January 9, 2013: The SEC has yet to finalize the rules governing the JOBS...

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Congressional Committee Contemplating JOBS Act 2.0 to Make Crowdfunding More Workable

This inVigor Law Group blog post discusses proposed bills, which would overhaul federal crowdfunding, regulation A offerings, and Form D filing requirements.

  Kyle Hulten

The United States House Financial Services Committee held hearings last week on bills that would rewrite legislation from the 2012 JOBS Act. At this preliminary stage the bills, which relate to crowdfunding, Reg A, and other securities laws, are only “discussion drafts of legislation.” For these bills to actually be finalized, they would have to get out of the committee, be passed by the House of Representatives, be passed by the Senate, and be signed into law by the President. Here’s a quick update on what those bills would do if enacted into law:

The Equity Crowdfunding Improvement Act of 2014

Rep. Patrick McHenry (R., N.C.) put together the draft of this bill, which would totally overhaul the crowdfunding portion of the...

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Friends and family financing round: Raising capital from non accredited investors

Is raising money from non accredited investors worth the costs and risks? We take a look at the options for the friends and family financing round.

  Kyle Hulten Is the family and friends round worth the costs and risks? After discussing the pros and cons with us, entrepreneurs often decide against raising money from family and friends. In today's post we'll talk about six different ways you could raise money from family and friends. ...

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Our Thoughts on the Proposed Crowdfunding Rules

This post discusses the background of the SEC's proposed rules for non-accredited investor crowdfunding, and why the new changes are not exciting.

  Gavin Johnson

Last week the SEC released proposed rules for non-accredited investor crowdfunding, which would let unaccredited investors (anyone) participate in securities offerings. What this means in plain English: when and if these proposed rules are enacted, companies will be able to raise up to one million dollars by selling stock to anyone willing to buy it, and for the first time they won’t have to do an IPO to be able to reach these investors.

Background Currently, to sell stock, companies have to:

File a registration statement and go through an IPO process that is generally prohibitively costly for all but the most successful companies; or Conduct a private placement offering that only accredited investors (individuals with $200k in annual income or over $1mm in...

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Rule 506(c): A Different Type of Crowdfunding?

I’ve highlighted some of the main points of Joe’s article below and included some of our thoughts about Rule 506(c) offerings and crowdfunding.

  Gavin Johnson

I read a recent article on Joe Wallin’s Startup Law Blog regarding the differences between crowdfunding and Rule 506(c) offerings. Because of the recent changes to the SEC’s Rule 506 under Regulation D, I figured our readers would be equally interested in learning more about crowdfunding and Rule 506(c). I’ve highlighted some of the main points of Joe’s article below and included some of our thoughts about 506(c) offerings and crowdfunding.

Why all the chatter? In the last year and a half, there has been a lot of talk about crowdfunding, general solicitation, and other innovative ways of raising capital. The chatter has increased recently because of the SEC’s recent repeal of the ban on general solicitation. The repeal of the ban...

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Basics of Investment Adviser Regulation

Investment adviser regulation defines advisers as people that are in the business of advising others on the value of, and investment in, securities.

  Collin Roberts

Generally speaking, investment advisers are people that are in the business of advising others on the value of, and investment in, securities. Investment advisers are subject to extensive regulation by the Securities Exchange Commission and state regulators.

The investment adviser regulations are designed to make sure that people in the business of advising on securities meet professional competency standards, have adequate capital, and provide adequate disclosures to investors.

What is an Investment Adviser?

Investment advisers are defined and governed by either state law, federal law, or both. Under RCW 21.20.005 an “investment adviser” is “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling...

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News Roundup 2012 Week 17: CROWDFUND Act, Terms of Use, & CISPA

  Kyle Hulten CROWDFUND Act

SEC Reiterates: Crowdfunding Not Legal Yet The SEC issued an official comment emphasizing that crowdfunding is not yet legal. The JOBS Act has passed, and it makes crowdfunding legal, but not until the SEC issues a number of rules proscribed by the legislation. Congress wrote into the bill that the SEC had 270 days to promulgate these proscribed rules. The SEC’s statement reads:

“On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal...

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