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Investment Limits in Title III Crowdfunding

November 20, 2015 / 2 minutes of reading / By Andrew Abramowitz

One of the key investor protections built into the SEC’s final rules on Title III crowdfunding is the strict limitation on the amount that investors can invest in these offerings in any 12-month period. The rules as stated by the SEC are somewhat difficult to parse; the following is a brief overview of the calculation to be done for each investor:

The limit applies across all offerings by all issuers; i.e., if an investor’s annual limit is $2,000, it can’t invest $2,000 with Issuer A and $2,000 with Issuer B (but it could do $1,000 with each).
To calculate the figure, compare the investor’s net worth and annual income, each calculated in accordance with the rules for determining accredited investor status. The lower of those two figures is the one used for the calculation.
If that lower figure is under $100,000, then the limit is $2,000 or 5% of the figure, whichever is greater.
If that lower figure is equal to or greater than $100,000, then the limit is 10% of that figure, subject to a cap for all investors of $100,000 to be invested in these offerings.

I believe that those commentators who have reflexively opposed the whole crowdfunding concept, at least for non-accredited investors, do not fully appreciate the impact of this investment limit. For that significant portion of Americans who fall under the $100,000 threshold for either income or net worth, no more than $2,000 (or a somewhat higher four-figure number) can be invested in all of these offerings per year. While this amount is not insignificant for the non-wealthy, it’s not an amount that will lead to financial ruin. Keep in mind, also, that there are no rules that limit the annual amount that anyone can spend on lottery tickets, gambling or – for an investment example – sketchy public companies. The investment limits contained in the JOBS Act and elaborated on by the SEC, I think, strike the right balance between protecting non-accredited investors while giving them a reasonable opportunity to participate in small business equity markets.

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Regulation A+ – How It Fits Into the System

April 2, 2015 / 2 minutes of reading / By Andrew Abramowitz

The SEC recently adopted final rules implementing significant changes to securities offerings done under Regulation A. Because of the greatly expanded scope of the offerings, they are referred to colloquially as Regulation A+ offerings. The SEC announced the final rules with a press release and fact sheet.

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Regulation A+ – How It Fits Into the System Read More »

The Latest on Possible Tweaks to the Accredited Investor Definition

March 14, 2015 / 3 minutes of reading / By Andrew Abramowitz

As most readers of this blog know, one of the key concepts in securities law compliance for private offerings is the definition of “accredited investor” in Regulation D. Although it is possible to include non-accredited investors in private offerings (e.g., Rule 506(b) permits offerings to up to 35 non-accredited investors), many issuers choose to limit their offerings to accredited investors only, which can simplify the offering from a documentation perspective.

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The Latest on Possible Tweaks to the Accredited Investor Definition Read More »

Some Interesting Legal Reads for the Week of July 21, 2014

July 22, 2014 / 1 minute of reading / By Andrew Abramowitz

The SEC issued some Compliance and Disclosure Interpretations on accredited investor verification for Rule 506(c) generally solicited offerings. Here’s a summary from Proskauer.
I agree with Joe Wallin on equity crowdfunding in the JOBS Act – to the extent it’s unworkable or not cost-efficient, mend it but don’t end it.
Michael O’Bryan of Morrison & Foerster on a trend in public companies including exclusive forum provisions in their charter and bylaws.
Nilene Evans, also of MoFo, details the hot IPO market.

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Interesting Legal Reads of the Week

May 27, 2014 / 1 minute of reading / By Andrew Abramowitz

Some interesting legal reads for the week of May 26, 2014:

Anna Pinedo of MoFo reports on the passage by House subcommittees of various JOBS Act-related bills. It’s unclear at this point how many will ultimately become law.
Also from MoFo, Ze’-ev Eiger summarizes remarks from Sebastian Gomez Abero, Chief of the Office of Small Business Policy of the Division of Corporation Finance of the SEC, about the SEC’s crowdfunding and Regulation A+ proposals.
DealBook reports on a study showing that “go shop” M&A provisions have a counterintuitively negative effect on sale proceeds.

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The Latest from the SEC on Private Offering Regulation

April 29, 2014 / 2 minutes of reading / By Andrew Abramowitz

Keith F. Higgins, the Director of the Division of Corporation Finance at the SEC, recently spoke at the 2014 Angel Capital Association Summit. His speech came in the midst of much JOBS Act rulemaking that I’ve blogged about frequently, and his remarks provide some useful insight into what the SEC is thinking about these days, although he includes the standard disclaimer that he’s speaking for himself and not the whole agency. In particular, I thought the following topics that he covered were worthy of note: …

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The Latest from the SEC on Private Offering Regulation Read More »

Limiting Investment Risk for Non-Accredited Investors

April 3, 2014 / 2 minutes of reading / By Andrew Abramowitz

I’ve noted in past posts that the SEC tends to take a paternalistic attitude toward the notion of non-accredited investors participating in private offerings, with income and net worth enshrined in the applicable rules as a rough proxy for sophistication and ability to take investment risk. However, the risk to non-wealthy investors of being wiped out is real. Needless to say, placing one’s entire nest egg in one basket, particularly a high-risk/high-reward-type of an investment, is a recipe for disaster. The JOBS Act provisions on crowdfunding, and the SEC’s proposed rules enacting those provisions, seek to address this issue through limitations on the amount that can be invested in any one offering and all crowdfunded investments together by those with modest income and net worth. …

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Limiting Investment Risk for Non-Accredited Investors Read More »

Interesting Reads of the Week for March 24th

March 26, 2014 / 1 minute of reading / By Andrew Abramowitz

Some interesting legal reads for the week of March 24, 2014:

Further to my recent post on risk factors, here’s an intriguing idea from Keith Paul Bishop on standardizing some risk factors.

Jim Hamilton reports on a pending bill that would eliminate the XBRL financial statement requirement for smaller public companies.

Recent public comments from SEC Chair Mary Jo White in her speech: “Protecting the retail investor”. She talked about key topics such as investor protection, investment advisor/broker-dealer issues, and the JOBS Act initiatives.

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Interesting Reads of the Week for March 3

March 3, 2014 / 1 minute of reading / By Andrew Abramowitz

Some interesting legal reads for the week of March 3, 2014:

DealBook on early examples of hedge funds advertising accredited investor-only offerings, under the new JOBS Act rules.
MoFo’s Jumpstarter on the comment letter about the Regulation A+ rule proposal by the North American Securities Administrators Association, i.e., the state securities regulators group, who wants to protect its turf and avoid federal preemption of blue sky regulation.
The WSJ has an update on the SEC’s progress in enacting the crowfunding rules.

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Interesting Reads of the Week

February 17, 2014 / 1 minute of reading / By Andrew Abramowitz

Some interesting legal reads for the week of February 17, 2014:

DealBook’s The Deal Professor on an attempt to de-decimalize trading of small company stocks.

Keith Paul Bishop on a recent SEC no-action letter relating to private company M&A brokers.

The Wall Street Journal on state-level LLC formation fees, including a discussion of New York’s publication requirement, which would be scaled back under a pending bill.

DealBook on what it terms the “Stealth I.P.O.” – while not inaccurate, the article paints the JOBS Act process for confidentially submitting S-1 registration statements for smaller IPOs as somehow enabling companies to withhold information from investors, though as the article goes on to note, there is a mandatory 21-day period during which the information can be reviewed and digested.

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