14969-Carousel-Credit-MoneyThe U.S. regulators have long been considering ways to make it easier for early-stage startup companies to raise capital in a more flexible and less cumbersome method.  The SEC has finally published regulations providing emerging companies with access to U.S. “crowd” investors making smaller investments.  Although the new regulations are perhaps less of a radical change than some might have been hoping for, they provide a fundraising avenue that may be attractive to some of our Israeli clients.

On Oct. 30, 2015, the Securities and Exchange Commission (SEC) adopted Regulation Crowdfunding by a 3-1 vote. The rules were adopted despite concerns expressed in comment letters to the SEC that capital raising through crowdfunding could lead to fraudulent activities, and thereby place unsophisticated investors at risk. Regulation Crowdfunding governs offers and sales of securities under Section 4(a)(6) of the Securities Act of 1933, as amended (Securities Act), which came into effect as part of the JOBS Act in 2012. Securities sold under the new rules are exempt from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended (Exchange Act). Regulation Crowdfunding will become effective May 16, 2016, except for certain provisions relating to funding portals, as discussed below. Under the new rules, an issuer may raise up to a maximum of $1 million in any rolling 12-month period from investors, including non-accredited investors. All offerings relying on Regulation Crowdfunding must utilize a SEC-registered broker-dealer or funding portal.

“Crowdfunding” has evolved in recent years as a method of raising capital through general solicitation, typically over the internet, for a variety of projects. The JOBS Act created an exemption under the U.S. federal securities laws to enable this funding alternative to be utilized for the offer and sale of securities, subject to certain investment size, and manner of offering limits. The provisions in the JOBS Act were designed to provide startup companies and small businesses with access to capital through relatively low dollar offerings of securities, featuring a less costly means of capital raising by relying on the “crowd.” In recent years, the concept has been confused with capital raises under Rule 506(c) under the Securities Act of 1933, as amended (Securities Act), and Regulation A+, adopted by the SEC last summer. However, as discussed below, crowdfunding under the newly-adopted rules draws important distinctions from other available exemptions. Offerings made in reliance on Section 4(a)(6) will not be integrated with other exempt offerings that occur prior to, concurrently with, or subsequent to the offering, provided that all conditions for each exemption relied upon are satisfied.

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Photo of Barbara A. Jones Barbara A. Jones

Barbara A. Jones is Co-Managing Shareholder of the firm’s Los Angeles office and a member of the firm’s Global Corporate practice. Barbara serves as Chair of the firm’s interdisciplinary Blockchain & Digital Assets practice. Barbara maintains a diverse corporate and securities law practice

Barbara A. Jones is Co-Managing Shareholder of the firm’s Los Angeles office and a member of the firm’s Global Corporate practice. Barbara serves as Chair of the firm’s interdisciplinary Blockchain & Digital Assets practice. Barbara maintains a diverse corporate and securities law practice across industry groups, emphasizing complex international and domestic transactions, including private and public financings, dual listings, mergers and acquisitions, strategic collaborations and joint ventures, and licensing transactions. She serves as a trusted advisor to public and private company boards of directors on governance matters and complex regulatory reporting and compliance issues. Barbara’s clients include financial institutions, private equity and venture capital groups, and public and private companies in emerging technology, life sciences and biotechnology, defense and security, blockchain and digital assets, telecommunications, information technology, energy (traditional and renewable), mining, media, entertainment and sports. Barbara also represents Olympic and professional athletes and sports-related organizations.

Barbara practiced U.S. law in London from 1990 through 1997 with Sullivan & Cromwell, LLP, and headed the international capital markets practice of Kirkland & Ellis LLP from 1999 to 2003 before relocating to Boston. From 1997 to 1999, she served as Vice-President, Assistant General Counsel and Regional Counsel for capital markets with J.P. Morgan Securities Ltd. in Europe, the Middle East and Africa. Since returning to the U.S., she has continued to actively represent public and private companies, private equity groups and investment banks in the European, Scandinavian, African and greater Asian markets, including China.

Barbara is a past chair of the ABA’s Subcommittee on International Securities Matters. She is a frequent speaker at conferences relating to cross-border securities matters, strategic alternatives, and digital asset structures. She serves on the Government of Bermuda’s Global FinTech Advisory Board.

Photo of John K. Wells John K. Wells

John Wells focuses his practice in the areas of complex commercial litigation, securities litigation and regulatory matters. He frequently represents financial services clients, including broker-dealers, investment advisors, banks and private equity funds, in matters before the Securities and Exchange Commission, Financial Industry Regulatory

John Wells focuses his practice in the areas of complex commercial litigation, securities litigation and regulatory matters. He frequently represents financial services clients, including broker-dealers, investment advisors, banks and private equity funds, in matters before the Securities and Exchange Commission, Financial Industry Regulatory Authority, U.S. Department of Justice and state regulatory authorities, as well as in state and federal courts and arbitration forums across the country. John has broad experience in a wide variety of litigation matters, including contract disputes, business torts, employment matters, restrictive covenants, securities fraud and securities class actions, multi-district litigation, shareholder and partnership disputes, products liability, wrongful death and real estate litigation. John also manages corporate internal investigations across multiple jurisdictions and industries.