How not to do a Rule 506(c) offering:
The following is a Private Placement Advisors-prepared abstract of a recent SEC order.
“Eureeca Capital SPC (“Eureeca”) operated a crowdfunding platform, incorporated in the Cayman Islands. In May 2013, Eureeca, through its website (www.eureeca.com), started a global, online, securities-based, crowdfunding platform that connected issuers with investors to raise funds in exchange for equity.
“Eureeca’s posting of securities offerings on its unrestricted website constituted a general solicitation. Visitors to the Eureeca website were permitted access to the names of the offerings, the amount of the offerings, and informational videos about the offerings without registering. None of this information was password protected or restricted in any way.
“Users had to register on the Eureeca website to gain access to additional information about the offerings of securities listed on its website and to invest in these offerings. To register, users had to provide their names, dates of birth, email addresses, countries, and phone numbers. No representation regarding accredited investor status was requested. Additionally, the website did not contain any disclaimer or definition of “accredited investor.”
“Eureeca did not implement procedures reasonably designed to prevent U.S. investors from using its services. Despite the disclaimer that Eureeca’s services could not be used by U.S. persons, users who selected “United States” as their country were allowed to register on the Eureeca website and gain full access to offering materials, and under certain circumstances, deposited funds with Eureeca for the purpose of investing.
“As of May 2014, Eureeca permitted over 50 persons who selected the U.S as their “country” during the website registration process to register on the website. Three U.S. residents who registered on the website invested in unregistered offerings of securities through the Eureeca website.
“Once registered, Eureeca sent registered users automated emails about the open offerings of securities listed on its website. The emails detailed the investment status of specific offerings, provided a brief overview of the offerings, and encouraged investment in the offerings of securities.
“Eureeca received a percentage of the funds of the fully funded offerings of securities as compensation for its services upon closing of a deal.
“In 2013, Eureeca accepted funds from three U.S. persons that had registered on its website (the “U.S. Investors”). Each of the three U.S. Investors provided copies to Eureeca of their U.S. passports and provided Eureeca with proof of a United States address.
“Eureeca did not take reasonable steps to verify that the U.S. Investors were accredited investors.
Eureeca allowed two of the U.S. Investors to self-certify that each was an accredited investor. Eureeca sent an email to two of the U.S. investors asking each to confirm their status as an accredited investor via email prior to investing in the offerings. The emails did not define or otherwise explain what the term “accredited investor” meant. Each of these U.S. investors confirmed they were accredited investors via email.
“Eureeca did not take any further action regarding whether these two U.S. investors were accredited investors prior to allowing them to invest in offerings of securities on its website.
Eureeca did not request any information to verify whether the third U.S. investor was an accredited investor prior to allowing him to invest in the offerings of securities on its website.
“Eureeca permitted the three U.S. Investors to invest approximately $20,000 total in four separate offerings for securities on its website.
“Eureeca violated Sections 5(a) and 5(c) of the Securities Act as a result of the unregistered offer and sale of securities to three U.S. investors because, after generally soliciting, it did not take reasonable steps to verify that the purchasers of the securities were accredited investors, as required under Rule 506(c) of Regulation D under the Securities Act.
“Eureeca also violated Section 5(c) of the Securities Act by offering the sale of securities in unregistered transactions between May and September 2013 because it was generally soliciting investors prior to Rule 506(c) being adopted. Additionally, Eureeca violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer to U.S. registered users on its website.
“A willful violation of the securities laws means merely “‘that the person charged with the duty knows what he is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).
“There is no requirement that the actor “‘also be aware that he is violating one of the Rules or Acts.’” Id. (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)).
“Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the Exchange Act, it is hereby ORDERED that: Eureeca cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. Respondent Eureeca is censured and shall pay civil penalties of $25,000 to the Securities and Exchange Commission. Payment shall be made in the following installments: a. $2,500 within 10 days of the entry of this Order; b. $2,500 within 40 days of the entry of this Order; c. $2,500 within 70 days of the entry of this Order; d. $2,500 within 100 days of the entry of this Order; e. $2,500 within 130 days of the entry of this Order; f. $2,500 within 160 days of the entry of this Order; g. $2,500 within 190 days of the entry of this Order; h. $2,500 within 220 days of the entry of this Order; i. $2,500 within 250 days of the entry of this Order; j. $2,500 plus interest on the payments described in Section IV.C(a)-(j) pursuant to 31 U.S.C. 3717 within 280 days of the entry of this Order.”
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