Offerings in the Internet and Social Media Age Update on Recent SEC - - PowerPoint PPT Presentation

The audio portion of the conference may be accessed via the telephone or by using your computer's

• speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Presenting a live 90-minute webinar with interactive Q&A

Redefining General Solicitation for Securities Offerings in the Internet and Social Media Age

Update on Recent SEC Guidance and Other Developments

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, JANUARY 31, 2017

Yelena M. Barychev, Partner, Blank Rome, Philadelphia Stanley Keller, Of Counsel, Locke Lord, Boston Richard M. Leisner, Shareholder, Trenam Law, Tampa, Fla.

Tips for Optimal Quality

Sound Quality If you are listening via your computer speakers, please note that the quality

• f your sound will vary depending on the speed and quality of your internet

connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-888-450-9970 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For additional information about continuing education, call us at 1-800-926-7926

• ext. 35.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please complete the following steps:

• Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

Redefining General Solicitation and Advertising for Securities Offerings in the Internet and Social Media Age

Yelena M. Barychev Blank Rome, Philadelphia Stanley Keller Locke Lord, Boston Richard M. Leisner Trenam Law, Tampa

January 31, 2017

• “General solicitation” is prohibited in a Rule 506(b)

private offering (Rule 502(c))

⁻ Also prohibited in a Rule 504 offering that is not state registered ⁻ General solicitation is inconsistent with a statutory 4(a)(2) private

• ffering (CDI §260.13), as well as a 4 (1 ½) or 4(a)(7) resale
• “General solicitation” is permitted in a Rule 506(c) offering
• The choice between relying on Rule 506(b) or (c) puts new

pressure on what constitutes “general solicitation”

• 2015 SEC guidance – CDIs §§256.23-256.33 and Citizen VC

letter

• In the internet era, use of an unrestricted website to offer and

sell securities is general solicitation (CDI §256.23)

Prohibition on General Solicitation

6

• In the absence of an “offer” there cannot be general

solicitation (CDI §256.24)

• Thus, factual business information is not necessarily an
• ffer

‾

Limited to information about the issuer’s business, financial condition, products or services, provided not presented in a manner to constitute an offer of securities (CDI §256.25)

• Similar to “gun jumping” analysis and use of Rules 168

and 169 What is General Solicitation – Absence of an Offer

7

• Existence of a pre-existing, substantive relationship with
• fferee, although not required, negates general solicitation

(CDI §256.26)

• “Pre-existing” means it was formed prior to the offering
• r, if formed by a broker or other intermediary, was

formed prior to the intermediaries participation in the

• ffering (CDI §256.29)

‾

Does it mean before offer to particular investor or before commencement of the offering?

What is General Solicitation – Pre-existing, Substantive Relationship

8

What is General Solicitation – Pre-existing, Substantive Relationship

(cont’d.)

• “Substantive” means sufficient information was obtained

to evaluate person’s “financial circumstances and sophistication” in determining status as an accredited or sophisticated investor (CDI §256.31)

‾

Quality of relationship more important than any waiting period (CDI §256.30 and Citizen VC)

9

• Requisite relationship can be formed by various parties in

different ways

• Historic guidance blessed broker “two-call” rule, and that

still applies

• That approach is extended to investment advisers (CDI

§256.28)

• Issuers can have a pre-existing, substantive relationship,

but it is unlikely to be able to create it using “two-call” rule

‾

Success in creating such a relationship depends on “facts and circumstances” (CDI §256.32)

‾

When may an issuer solicit information from potential investors to establish the relationship without its being an “offer”?

How to Form Pre-existing, Substantive Relationship

10

• However, issuer can rely if justified on relationships

established by others (CDIs §§256.27 and 256.32)

• Thus, issuer may be able to rely on investors within a

network of sophisticated investors, such as an angel investor network

How to Form Pre-existing, Substantive Relationship (cont’d.)

11

• Online investor platforms can avoid general solicitation

even though widely soliciting potential investors as long as they establish the requisite relationship before making any specific offer (Citizen VC)

• Guidance on conducting demo-days, pitch events and

venture fairs (CDI §256.33)

‾

Structure to avoid “offers” – just factual business information

‾

Limit attendees to persons with whom there is a pre- existing, substantive relationship or contacted through network creating that relationship

‾

Use Rule 506(c)

Online Platforms and Events

12

• Authorized by JOBS Act
• Permits general solicitation (without losing status as “not

involving a public offering”)

• Form D filing requirement (not a condition of exemption)
• Condition is purchasers must be solely accredited

investors whose status as such is reasonably verified

• Reasonable steps to verify is a facts and circumstances

determination (unless safe harbor is used for natural persons) Use of Rule 506(c)

13

• Safe Harbors based on

‾

Income test

‾

Net worth test

‾

Regulated third-party verification

‾

Grandfathering

• How is Rule 506(c) being used

‾

Experience to date

‾

With general solicitation – “accredited investor crowdfunding”

‾

As safety net

• Disadvantages of using Rule 506(c)

Use of Rule 506(c) (cont’d.)

14

• Different lessons for different types of participants

‾

Brokers

‾

Investment advisers

‾

Private funds

‾

Online investor platforms

‾

Angel investor networks

‾

Issuers (and their counsel)

• Should not affect determination of accredited investor

status

• Relevance for 4(a)(2), 4 (1 ½) and 4(a)(7) offerings

Some Lessons from SEC Guidance

15

• Rule 506(c) may be available as an alternative or as a

safety net for Rule 506(b) offerings that involve “general solicitation” Some Lessons from SEC Guidance (cont’d.)

16

Exemptive Alternatives

• Section 4(a)(2)

‾

no general solicitation

• Regulation D

‾

Rule 504

• restricted (no general solicitation)
• state registered (general solicitation in specified ways)

‾

Rule 505 (will soon be gone and replaced by expanded Rule 504)

• Crowdfunding (Equity)

‾

General solicitation in specified ways

17

Exemptive Alternatives (cont’d.)

• State Crowdfunding

‾

Intrastate/Rule 147

• no out-of-state offers (what constitutes such an

“offer”?)

• effect of “not an offer outside this state” legends?

‾

Rule 147A

• ut-of-state offers permitted but only in-state sales

‾

Rule 504

• regional exemption

18

Exemptive Alternatives (cont’d.)

• Regulation A

‾

Tier 1

‾

Tier 2

‾

General solicitation in specified ways

19

Integration Considerations

• Firewall approach for certain exemptions (Regulation A,

Crowdfunding, Rules 147 and 147A)

• Rule 506(c) offering following completed Rule 506(b)
• ffering (CDI §256.34)
• What about a 4(a)(2) or Rule 506(b) offering following a

Rule 506(c) offering?

• What about a registered offering after a Rule 506(c)
• ffering?

20