The Securities and Exchange Commission (SEC) on Sept. 25, 2018, released interpretive guidance in Frequently Asked Questions (FAQs) Regarding Regulation Crowdfunding and Intermediary Requirements.
The guidance explains the SEC’s requirements for broker-dealers and funding portals, the online agents that sell crowdfunding investments. The guidance addresses the SEC’s Regulation Crowdfunding, which was adopted in Release No. 33-9974, Crowdfunding. The rule carries out a provision from the 2012 JOBS Act meant to aid small companies trying to raise investment capital. Sec. 1 of pl112-106
The Crowdfunding FAQs cover the restrictions on intermediaries with regard to their financial interest in an issuer of crowdfunding securities. The guidance also explains the steps intermediaries have to take to reduce the risk of fraud.
“Intermediaries must have a reasonable basis to believe that an issuer seeking to rely on the crowdfunding exemption complies with the requirements of Section 4A(b) and Regulation Crowdfunding, and has established means to keep accurate records of the holders of securities,” the Crowdfunding FAQs say. “The rule allows an intermediary to rely on issuer representations unless the intermediary has reason to question the reliability of those representations.”
Other topics covered by the guidance include an intermediary’s obligations to provide investors with educational material, the intermediary’s responsibility for ensuring that investors are not exceeding the limits imposed by Regulation Crowdfunding, the restrictions on handling investor funds.
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