Funding Portal Registration.
As expected, a funding portal must register with the SEC by filing a complete Form Funding Portal (to be amended whenever previously submitted information becomes inaccurate) and become a member of a national securities association; a funding portal that is registered this way is exempt from the broker registration requirements. A non-U.S. portal can register, too, but its registration is conditioned upon there being an information sharing arrangement in place between the SEC and the competent regulator in the non-U.S. portal’s jurisdiction, an agent for service in the U.S., and an opinion of counsel regarding the ability of the non-U.S. portal to provide prompt access to its books and records and to submit to onsite inspection among other things.
The final rules provide that a funding portal cannot: offer investment advice or recommendations; solicit purchases, sales, or offers to buy the securities offered on its platform; compensate employees, agents, or other persons for such solicitation or based on the sale of such securities; or hold, manage, possess, or otherwise handle investor funds or securities, among other things. The final rules also provide a list of permitted activities, including, among other things:
- determine whether and under what terms to allow an issuer to offer and sell crowdfunded securities on its platform;
- apply objective criteria to highlight offerings on the funding portal’s platform where the criteria are reasonably designed to highlight a broad selection of issuers, are applied consistently to all issuers, and are clearly displayed on the platform, e.g., the type of securities, geographic location of the issuer, the industry or business segment, etc., and the portal does not receive special compensations for highlighting issuers or offerings;
- provide search functions or other tools that investors can use to search, sort, or categorize available offerings according to objective criteria (e.g., geographic location of the issuer, etc., but not the advisability of investing or an assessment of any risks, etc.)
- provide communication channels by which investors can communicate with one another and with the issuer through the portal’s platform, subject to certain conditions;
- advise an issuer about the structure or content of the offering, including assisting the issuer in preparing offering documentation;
- compensate a third party for referring a person to the portal, subject to certain conditions; pay or offer to pay any compensation to a registered broker or dealer for services, including referrals, subject to certain conditions;
- receive any compensation from a registered broker or dealer for services provided by the portal, subject to certain conditions; and
- advertise the existence of the portal and identify issuers or offerings available on the portal, subject to certain conditions.
A portal must implement written policies and procedures reasonably designed to achieve compliance with the applicable laws and regulations and permit the examination and inspection by the SEC and its registered national securities association. A funding portal is also subject to certain recordkeeping requirements, including all records related to actual and potential investors, issuers who offer and sell or attempt to offer and sell securities through the portal, and communications that occur on its platform, among other things.
In our next post, we will discuss other requirements under the final rules.
This post was a part of a multi-part series on the SEC final rules on the crowdfunding exemption. You can find the other posts by searching our blogs at www.mcbrideattorneys.com.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. R. Shawn can be contacted at: (214) 418-0258; firstname.lastname@example.org, or www.mcbrideattorneys.com.
 17 C.F.R. § 227.400(a), (b).
 Id. § 227.401.
 Id. § 227.400(f).
 Id. § 227.402(a).
 Id. § 227.402(b).
 Id. § 227.403.
 Id. § 227.404.