SEC Guidance on Using Twitter in a Regulation A+ Offering

Regulation A+ is of great interest right now to a lot of people because of the excitement around equity crowdfunding in general.

Regulation A+ Is Not for the Faint of Heart

An example: Bloomberg ran a story today on using Twitter to “test the waters” in a Regulation A+ offering.

In case you are wondering where you can find this guidance, you can find it here.

And here is the guidance quoted in full:

Question 182.09

Question: Can an issuer solicit interest (or “test the waters”) in a Regulation A offering on a platform that limits the number of characters or amount of text that can be included, thereby preventing the inclusion in such communication of the information required by Rule 255?

Answer: Yes. The staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 255 in the following limited circumstances:

  • The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
  • Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
  • The communication contains an active hyperlink to the required statements that otherwise satisfy Rule 255 and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the entirety of the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate. [June 23, 2015]


Why You Shouldn’t Try This At Home

The securities laws are complex and difficult, and it is easy to read about the JOBS Act and innovations in finance brought about by the JOBS Act and think you can do things like Tweet about your private company’s financing.

Please hit the pause button in these instances. Remember the above guidance is only applicable to Regulation A offerings. Your 506(b) offering? These rules don’t apply.

Have fun, and be careful out there.

Wild by Cheryl Strayed: A Great Read

I’ve just started reading Wild, by Cheryl Strayed, and I highly recommend it. If you don’t know the story, the author decides to hike the entire Pacific Crest Trail. It is a great story, not only about the hike, but her life.

I liked this passage about how her and her mom and her sister and brother and step-father lived in a small cabin in the woods when she was a kid:

There was a skylight window in the ceiling that ran the length of the platform bed I shared with Karen, its transparent pane only a few feet from our faces. Each night the black sky and the bright stars were my stunning companions; occasionally I’d see their beauty and solemnity so plainly that I’d realize in a piercing way that my mother was right. That someday I would be grateful and that in fact I was grateful now, that I felt something growing in me that was strong and real.

It was the thing that had grown in me that I’d remember years later, when my life became unmoored by sorrow. The thing that would make me believe that hiking the Pacific Crest Trail was my way back to the person I used to be.

If you want to know more about Cheryl, I liked this piece on BrainPickings about her.

You could also hear her talk here.

Secret Government Patent Program Buckles Under Public Pressure


By Adam L.K. Philipp – Founder – Aeon Law

The US Patent Office has decided to cancel a controversial program that flagged certain types of patent applications for slow-track treatment.

As we previously discussed, since 1994 the USPTO had a program known as the Sensitive Application Warning System (SAWS) to deal with “controversial or inconvenient” patents.

Patents put on the SAWS track included ones dealing with abortion, AIDS vaccines, suicide machines, smart phones, and anything considered “pioneering.”

The details of the SAWS program were kept secret until revealed pursuant to a Freedom of Information Act request by attorneys at a US intellectual property law firm. The attorneys became aware of the program when a patent examiner let slip a reference to it.

The attorneys said that the intent of the program appeared to be to help the Patent Office avoid embarrassment. The revelation of the existence of the program led to considerable discussion in the patent community.

The Patent Office denied that the SAWS program was actually “secret,” although neither patent applicants nor patent attorneys were informed when their applications were assigned to the program.

Concerns about the impact of the program were muted somewhat when the USPTO disclosed that only .04% of all patent applications were routed to the SAWS program.

The public exposure led the USPTO to review the program and it recently posted the following notice on its website, “Upon careful consideration, the USPTO has concluded that the SAWS program has only been marginally utilized and provides minimal benefit.”

Any patent applications previously assigned to the SAWS program will now be put on the regular track.

Patent Commissioner Margaret Focarino said that any future similar “quality-enhancing” initiatives would be “disclosed to the public before implementation.”

We’re glad that the Patent Office made this sensible decision. Secret programs, or even somewhat secret programs, are inconsistent with government transparency and public accountability and are clearly inappropriate when it comes to protecting intellectual property rights.

adam philippAdam L. K. Philipp has been involved in the prosecution of patent applications in the computer science, electrical devices, consumer products and related fields since 1998 and with Internet and technology related law since 1995. He also counsels clients on intellectual property portfolio strategies and infringement matters.

Big News From The DFI re Washington Crowdfunding

For a while there has been a concern about Washington’s equity crowdfunding law because of limitations inherent in the law.

Washington’s equity crowdfunding bill was built on Section 3(a)(11) of the Securities Act of 1933 and its accompanying Rule 147.

The problems with basing the law on Rule 147 were as follows:

  • Rule 147 doesn’t allow advertising across state lines. So, no use of Twitter to advertise your equity crowdfunding offering.
  • Rule 147 has a variety of limitations and tests that are designed to ensure that the business raising the money is truly a local business. These rules limit the number of businesses that can use the law.

Almost all states that have put in place state equity crowdfunding rules have built their laws on Rule 147. Maine is the exception. Maine built its law on Rule 504 and a registration process. Under Rule 504 issuers can advertise, and are not bound by the limitations in Rule 147.

This year a bill was proposed in the Washington State legislature to address this, to allow Washington companies to rely on either Rule 147 or Rule 504 when crowdfunding. But no law was necessary. Instead the DFI has adopted an administrative position allowing this approach. I have quoted the FAQ in pertinent part below. The FAQ is also very helpful for a lot of issues relating to the new crowdfunding law.

The DFI’s Guidance

Can my company use the Washington Crowdfunding Form without having to comply with all the intrastate restrictions of federal Rule 147?

An issuer may not want to conduct a crowdfunding offering under federal Rule 147 for a number of reasons, including the restrictions that Rule 147 places on internet advertising and the use of proceeds. To accommodate issuers that would like to conduct a crowdfunding offering that is not subject to the restrictions of Rule 147, the Division will allow an issuer to use the Washington Crowdfunding Form as the disclosure document for an offering of up to $1 million that is registered under RCW 21.20.210. As such an offering would be registered at the state level, the offering could qualify for an exemption under federal Rule 504 instead of Rule 147. In an offering that is registered in one or more states, federal Rule 504 does not impose the restrictions on internet advertising that apply in intrastate offerings conducted under Rule 147. In addition, none of the other intrastate restrictions of federal Rule 147 apply in a Rule 504 offering.

An issuer that wishes to use the Washington Crowdfunding Form in order to conduct an offering registered under RCW 21.20.210 will need to submit the completed form, an Application for Registration by Qualification, and the required fee. Please note that with respect to the majority of the required exhibits to the Application for Registration by Qualification, the issuer may simply include a cross reference to the location in the Washington Crowdfunding Form where this information is available. Further, the financial statements specified in the Washington Crowdfunding Form will satisfy the financial statement requirements under RCW 21.20.210 (thus an issuer may disregard the financial statement instructions in the application form). The fee is calculated as $100 for the first $100,000 of securities to be offered in this state plus 0.0005 times the amount of securities to be offered in excess of $100,000. For example, an offering of $1 million would require the submission of a fee in the amount of $550.

It should be noted that if the issuer wishes to make the offering in additional states, the issuer will likely need to register the offering in the other states where the offering will be made. If an issuer is planning to make a multi-state offering using the internet and other forms of general solicitation, the issuer should consider conducting a SCOR offering instead as most states will accept the SCOR Form to conduct a registered offering and multi-state coordinated review is available. For more information, please see our Small Company Offering Registration (SCOR) page.

The staff in the Small Business Assistance Section of the Securities Division would be happy to answer your questions regarding the use of the Washington Crowdfunding Form and/or SCOR registration. Please call us at 360-902-8760 and ask to speak to a staff member regarding your offering options.