Emerging Markets Law

SEC Compliance and Disclosure Interpretations on Regulation CF Crowdfunding

The SEC's Division of Corporation Finance recently released Compliance and Disclosure Interpretations (“C&DIs”) regarding its interpretations of Regulation Crowdfunding.

While C&DIs are not rules, regulations, or statements of the Commission, they are a helpful insight into how the staff of the Commission views the law.  

Many of the C&DIs deal with the rules governing advertising. This is not surprising because Regulation CF's rules on advertising are not intuitive for most business people.

For example, Regulation CF allows an issuer to make fairly broad statements to promote its offering when those statements are made through the communications channels provided by the intermediary portal.  But, any statements made by or on behalf of an issuer that include any of the "terms of the offering" outside of the portal's channels are strictly limited to the permissible disclosures as outlined in Rule 204(b).  

However, as the C&DIs indicate in Question 204.03, an issuer may promote itself outside of the intermediary's channels with any promotional information but only if that communication does not include any of the "terms of the offering" as set forth in Rule 204(b).  

So, if the issuer wants to advertise the "terms of the offering" it may, but it may not say anything more.  And, if the issuer wants to advertise information other than the "terms of the offering" it may, but it may not mix that information with any of the "terms of the offering." 

The prohibitions of advertising extend to third parties who act on behalf of the issuer including (in the view of the C&DI's) articles published by independent media "if the media article advertises the terms of the offering and the issuer has been directly or indirectly involved in the preparation of the publication." 

This will be a problematic interpretation.  Imagine, for example, that the CEO of an Issuer gives an interview with the media which results in a media publication that includes some of the terms of the offering along with information that would be outside the range of Rule 204(b).  Would the CEO's participation in the interview constitute "involvement in the preparation" of that publication?  While the Issuer would not have the ability to edit the publication or prevent the publication from occurring, it would (in the interpretation found in the C&DIs) have responsibility for the publication by virtue of having given an interview. 

I expect we will hear more in the near future as portals and intermediaries bump up against the SEC's restrictions on advertising.  

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