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SEC Adopts Regulation Crowdfunding to Facilitate Early Capital Raises

By Ira N. Rosner, John K. Wells & Barbara A. Jones on December 1, 2015
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14969-Carousel-Credit-MoneyThe U.S. regulators have long been considering ways to make it easier for early-stage startup companies to raise capital in a more flexible and less cumbersome method.  The SEC has finally published regulations providing emerging companies with access to U.S. “crowd” investors making smaller investments.  Although the new regulations are perhaps less of a radical change than some might have been hoping for, they provide a fundraising avenue that may be attractive to some of our Israeli clients.

On Oct. 30, 2015, the Securities and Exchange Commission (SEC) adopted Regulation Crowdfunding by a 3-1 vote. The rules were adopted despite concerns expressed in comment letters to the SEC that capital raising through crowdfunding could lead to fraudulent activities, and thereby place unsophisticated investors at risk. Regulation Crowdfunding governs offers and sales of securities under Section 4(a)(6) of the Securities Act of 1933, as amended (Securities Act), which came into effect as part of the JOBS Act in 2012. Securities sold under the new rules are exempt from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended (Exchange Act). Regulation Crowdfunding will become effective May 16, 2016, except for certain provisions relating to funding portals, as discussed below. Under the new rules, an issuer may raise up to a maximum of $1 million in any rolling 12-month period from investors, including non-accredited investors. All offerings relying on Regulation Crowdfunding must utilize a SEC-registered broker-dealer or funding portal.

“Crowdfunding” has evolved in recent years as a method of raising capital through general solicitation, typically over the internet, for a variety of projects. The JOBS Act created an exemption under the U.S. federal securities laws to enable this funding alternative to be utilized for the offer and sale of securities, subject to certain investment size, and manner of offering limits. The provisions in the JOBS Act were designed to provide startup companies and small businesses with access to capital through relatively low dollar offerings of securities, featuring a less costly means of capital raising by relying on the “crowd.” In recent years, the concept has been confused with capital raises under Rule 506(c) under the Securities Act of 1933, as amended (Securities Act), and Regulation A+, adopted by the SEC last summer. However, as discussed below, crowdfunding under the newly-adopted rules draws important distinctions from other available exemptions. Offerings made in reliance on Section 4(a)(6) will not be integrated with other exempt offerings that occur prior to, concurrently with, or subsequent to the offering, provided that all conditions for each exemption relied upon are satisfied.

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Photo of Barbara A. Jones Barbara A. Jones

Barbara A. Jones is a member of the firm’s Global Securities practice group and serves as Co-Chair of the firm’s interdisciplinary Blockchain & Cryptocurrency practice group. She is also co-coordinator of the firm’s interdisciplinary Conflict Minerals Compliance Initiative. Barbara maintains a diverse corporate

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Barbara A. Jones is a member of the firm’s Global Securities practice group and serves as Co-Chair of the firm’s interdisciplinary Blockchain & Cryptocurrency practice group. She is also co-coordinator of the firm’s interdisciplinary Conflict Minerals Compliance Initiative. Barbara maintains a diverse corporate and securities law practice across industry groups, emphasizing complex international and domestic transactions, including blockchain and cryptocurrency transactions, private and public financings (including token offerings), dual listings, mergers and acquisitions, strategic collaborations and joint ventures, and licensing transactions. Her practice includes serving as a trusted advisor to public and private company boards of directors on governance and complex regulatory reporting and compliance issues. Barbara’s clients include financial institutions, private equity and venture capital groups, and companies in blockchain, life sciences and biotechnology, information technology, energy (traditional and renewable), mining, defense and security, telecommunications, media, entertainment and sports. Barbara is also active in the representation of Olympic athletes and sports-related organizations.

Barbara practiced U.S. law in London from 1990 through 2003, and headed the international capital markets practice of a major U.S. law firm from 1999 to 2003 before relocating to Boston. From 1997 to 1999, she served as Vice-President, Assistant General Counsel and Regional Counsel for capital markets with J.P. Morgan Securities Ltd. in Europe, the Middle East and Africa. Since returning to the U.S., she has continued to actively represent public and private companies, private equity groups and investment banks in the European, Scandinavian, African and greater Asian markets, including China.

Barbara is a past chair of the ABA’s Subcommittee on International Securities Matters. She is a frequent speaker at conferences relating to cross-border securities matters and strategic alternatives.

Read more about Barbara A. JonesEmail
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  • Posted in:
    Corporate & Commercial, International
  • Blog:
    GT Israel Law Blog
  • Organization:
    Greenberg Traurig, LLP
  • Article: View Original Source

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