Exempt Offerings  JOBS Act Solutions

advising on exempt offerings to find investors.  


Explaining Seed Round Funding

Posted on February 15, 2019 at 3:30 PM Comments comments (0)

First, we are talking equity. No notes or other debt is welcome unless convertible and even then probably not. Early stage investors demand partial ownership. It is too early for debt. Valuation is the rub.


Valuation is often not transparent to say the least. Valuation is subjective, based on management, track record, market size, competition and risk.


Stages of Seed or Early-Stage Funds


Pre-Seed Round


This is when the founders are getting the company’s operations off the ground. It is the first part of your Friends-and-Family Round.


SEC Rule 506(b allows up to 35 non-accredited investors. If you want family money and not all family members are accredited, go with 506(b and convert to 506(c when you need more capital.


Seed Round (also known as the Early-Stage Capital Round)


This round enables you to pay a founding team to perform market research and ongoing product development (and sometimes related product development). Your team determines what the final product or service should be and who its target demographic is.


Seed Round sources include angel investors, private equity investors, and other private placement investors. Some startups return to the friends-and-family well, the second part of the Friends-and-Family Round.


SEC Rule 506(c allows you to market your deal to the public (something not permitted for 80 years prior to enactment of the JOBS Act). The usual drill in Equity CrowdFunding is to use 506(b to raise from friends, family and associates and then use 506(c to raise from more money from the public, most commonly with online advertising.


Practice Note: You can go from 506(b to 506(c but not from 506(c to 506(b.


Valuations for Seed Rounds typically range between $3 million and $6 million while Seed Funding rounds themselves range from $10,000 to $20 million.


Equity CrowdFunding -- which means Regulation D, Regulation S and Regulation A under the JOBS Act -- is becoming the go-to tool for the Seed Round (as well as for the Pre-Seed Round). For $1 million offerings, “Reg Cf” is available.


Even after securing a Seed Round, in today’s tech-weighted economy, companies may attract insufficient investor interest from traditional Series A investors such as VCs and private equity funds. These companies now frequently turn to Equity Crowdfunding in the form of a Regulation A offering with a $50 million maximum raise or a Regulation D offering or Regulation S offering with no maximums.


If you have overseas investor interest, Regulation S allows you to take advantage of less regulatory oversight than with Regulation D offerings


Series A Round / Series B Round / Series C Round


These rounds are for companies that have developed a track record, established user base, consistent revenue figures or other key performance indicators. These rounds are used to further optimize the user base and to scale the product or service across different markets. The business model must promise long-term profits and a convincing, detailed description of how you go from here to there. You need more than a good idea. You a persuasive strategy for turning that idea into a successful, money-generating, ongoing business.


Series A, B and C rounds are where FINRA-licensed broker-dealers get involved. And this is when VCs and private equity players invest. A single investor may serve as the “anchor,” drawing in other, less adventuresome investors. Typically Series A rounds typically raise $2 million to $20 million. Series B and Series C Rounds raise from $50 million to much more than that.


Time for an IPO?


Of course, some startups find that they do not need Series A funding, let alone Series B or Series C funding. These companies already have sufficient outside funding together with operational cash flow.


Private Placement Advisors LLC designs and executes Seed Funding Rounds under the JOBS Act. That is all we do. Please contact [email protected]



No ICOs Registered with the SEC

Posted on May 4, 2018 at 10:35 PM Comments comments (0)

The SEC says no ICOs have been “registered” -- but the SEC is not really keeping score.

The SEC says no ICOs have been “registered” but that doesn’t count the growing number of exempt offerings under Rule 506(c.

Is there a path from a pre-ICO fund raise using Reg CF to a Form D Rule 506(c offering and then to a Reg A+ offering? And then even to a full registration?

Securities and Exchange Commission Chairman Jay Clayton has repeatedly reassured the public that no initial coin offerings have been “registered” with the SEC, but plenty of them are coming onto the market through the back door. Eventually, these ICOs could get distributed beyond just accredited investors and into the hands of retail consumers.

There’s been significant growth in ICOs using Rule 506(c since the beginning of 2017.

Period Number of ICO-Related Form Ds

1Q 2017 0

2Q 2017 1

3Q 2017 11

4Q 2017 32

1Q 2018 (Through Feb. 20) 39

With tokens or coins issued to accredited investors under Rule 506(c of Regulation D, one year would be the minimum timeframe for transfers under Rule 144. Most of the ICOs filed using Form D since mid-2017 have used Simple Agreement for Future Tokens, or SAFT, as their legal framework.

Telegram used the SAFT structure to raise money from accredited investors. As for the transition form accredited investors to retail investors, “There is still significant uncertainty about how to go beyond the SAFT accredited investors to the retail investor under the current regulatory environment.” 


Join the State Securities Regulation LinkedIn discussion group and go down the crypto rabbit hole with us to learn 1) what will constitute securities in the eyes of state regulators and the SEC, and 2) what will constitute best practices for exempt offerings of ICO offerings. 

Members of the discussion group are entitled to any of 21 audio handbooks on exempt [email protected] https://www.audible.com/search/ref=a_hp_tseft?advsearchKeywords=Douglas%20Slain&filterby=field-keywords


Posted on September 5, 2017 at 10:15 PM Comments comments (0)

Alabama The bill was signed into law and became effective immediately on April 9, 2014. Further information can be found at asc.alabama.gov/Registration%20Filing%20Req/Crowdfunding_guidelines.aspx.

Alaska The bill was signed into law on July 18, 2016 and became effective on October 16, 2016. Further information can be found at commerce.alaska.gov/web/dbs/.

Arkansas HB 1890 was introduced on March 2, 2017 and referred to Insurance & Commerce. SB 640 was introduced on March 6, 2017 and referred to Insurance and Commerce.

Arizona The bill was signed into law on April 1, 2015 and became effective on July 15, 2015. Further information can be found at azcc.gov/divisions/securities/regulatory_alerts.asp.

California AB 1517 was introduced on February 17, 2017, and referred to Banking & Finance and Judiciary.

Colorado The bill was signed into law on April 13, 2015 and became effective on August 5, 2015. Further information can be found at colorado.gov/pacific/dora/equity-crowdfunding.

Delaware The bill was signed into law on July 11, 2016, and became effective November 8, 2016. Further information can be found delcode.delaware.gov/title6/c073/sc02/index.shtml.

District of Columbia The rule was adopted on September 29, 2014 and took effect on October 24, 2014. Further information can be found at disb.dc.gov/page/equity-crowdfunding-dc-only-securities-offeringexemption.

Florida The bill was signed into law on June 16, 2015 and became effective October 1, 2015. Further information can be found at flofr.com/StaticPages/CrowdfundingIssuers.htm.

Georgia The rule was adopted and became effective on December 8, 2011. Further information can be found at garules.elaws.us/rule/590-4-2-.08. Idaho The rule was adopted and became effective on January 20, 2012. Further information can be found at finance.

Idaho.gov/Securities/AAGeneralOtherOrders.aspx. Illinois The bill was signed into law on July 29, 2015 and became effective on January 1, 2016. Further information can be found at cyberdriveillinois.com/publications/securitiespub.html#crowd. March 21, 2 HB 3791 was introduced on February 10, 2017 and assigned to Business Growth & Incentives.

Indiana The bill was signed into law on March 25, 2014 and became effective on July 1, 2014. Further information can be found at in.gov/sos/securities/4114.htm.

Iowa The bill was signed into law on July 2, 2015 and became effective on January 1, 2016. Further information can be found at legis.iowa.gov/docs/publications/LGE/86/HF632.pdf.

Kansas The rule was adopted and became effect on August 12, 2011. Further information can be found at ksc.ks.gov/index.aspx?NID=121. Kentucky The bill was signed into law on March 19, 2015 and became effective on November 6, 2015. Further information can be found at kfi.ky.gov/industry/Pages/crowdfunding.aspx.

Maine The bill was signed into law on March 2, 2014 and became effective on January 1, 2015. Further information can be found at maine.gov/pfr/securities/index.shtml.

Maryland An exemption by order (MDCF) was adopted and became effective on May 16, 2016. Further information can be found at marylandattorneygeneral.gov/Securities%20Documents/Maryland_Crowdfunding_Order_5_16_16 _final.pdf. A separate exemption by order (MISBE) was adopted and became effective on October 1, 2014, and can be found at marylandattorneygeneral.gov/Securities%20Documents/MISBEOrder.pdf.

Massachusetts The rule was adopted and became effective on January 15, 2015. Further information can be found at sec.state.ma.us/sct/crowdfundingreg/crowdfundingidx.htm.

Michigan The bill was signed into law and became effective on December 30, 2013. Further information can be found michigan.gov/lara/0,4601,7-154-61343_32915-319233--,00.html.

Minnesota The bill was signed into law on June 15, 2015 and became effective on June 20, 2016. Further information can be found at mn.gov/commerce/industries/securities/mnvest/. HB 444 was introduced on January 23, 2017, passed the House on March 2, 2017, and passed the Senate on March 20, 2017.

Mississippi The rule was adopted on February 9, 2015 and became effective May 26, 2015. Further information can be found at sos.ms.gov/Securities/Pages/Crowdfunding.aspx.

Montana The bill was signed into law on April 1, 2015 and became effective on July 1, 2015. Further information can be found csimt.gov/securities/capital-formation/equity-crowdfunding/.

Nebraska The bill was signed into law on May 27, 2015 and became effective on September 1, 2015. Further information can be found at ndbf.nebraska.gov/industries/securities/intrastate-crowdfunding. LB 148 was introduced on January 9, 2017 and referred to Banking, Commerce and Insurance.

New Jersey The bill was signed into law on November 9, 2015 and became effective on August 12, 2016. Further information can be found at njconsumeraffairs.gov/bos/Pages/CrowdfundingFAQ.aspx. A 291 was introduced on January 27, 2017 and referred to Assembly State and Local Government.

North Carolina The bill was signed into law on July 22, 2016 and is pending final rulemaking. Further information can be found at sosnc.gov/legal/ThePage.aspx.

Ohio HB 10 was introduced on February 1, 2017 and referred to Financial Institutions, Housing and Urban Development.

Oregon The rule was adopted on October 15, 2015 and became effective on January 15, 2015. Further information can be found at dfr.oregon.gov/business/resources/Pages/raising-capital.aspx.

South Carolina The rule was adopted and became effective on June 26, 2015. Further information can be found at scag.gov/scsecurities/registration.

Tennessee The bill was signed into law on May 19, 2014, and rules became effective December 16, 2015. Further information can be found at tn.gov/commerce/news/18782.

Texas The rule was adopted on October 22, 2014 and became effective on November 17, 2014. Further information can be found at ssb.texas.gov/texas-securities-act-board-rules/texas-intrastatecrowdfunding. (NASAA) 4

Vermont The rules were adopted and became effective on June 16, 2014. Further information can be found at dfr.vermont.gov/securities/corporate-finance/corporate-finance-exemptions.

Virginia The bills were signed into law on March 19 and March 23, 2015 and became effective on July 31, 2015. Further information can be found at scc.virginia.gov/srf/bus/crowd.aspx.

Washington The bill was signed into law on March 28, 2014 and became effective on November 1, 2014. Further information can be found at dfi.wa.gov/small-business/crowdfunding. HB 1593 was introduced on January 24, 2017 and passed the House on February 20, 2017. SB 5680 was introduced on February 2, 2017 and approved by the Committee on Financial Institutions and Insurance on February 14, 2017.

West Virginia The bill was signed into law on March 15, 2016, and became effective June 6, 2016. Further information can be found at wvsao.gov/Securities/Default#NaN.

Wisconsin The bill was signed into law on November 7, 2013, and became effective on June 1, 2014. Further information can be found at wdfi.org/fi/securities/crowdfunding/.

Wyoming The bill was signed into law on March 3, 2016, and will become effective July 1, 2017. Further information can be found at soswy.state.wy.us/Investing/Docs/Wyoming_Securities_Act_Effective_07-01-2017.pdf.

Types of Businesses Using Intrastate Crowdfunding Grocery store, general store, exercise studios, software company, night club, music/real estate venue, farmers (family-run farm, dairy farm, farming coop), retail electronics store, technology companies (medical device, education technology, renewable energy), family-run manufacturing businesses, real estate firms (micro-financing, commercial property, construction), product inventions, hair salon, barbershop, entertainment platforms (movie, album, other media, over-the air digital TV station), electronic/gaming pub, dog groomer, sushi restaurant, ice cream maker, baseball bat maker, angel funds, defense consultant, food and beverage platforms, restaurants, apparel companies, service providers (home renovation, security alarm systems, food processing), senior care facilities, physician association, media art firms, purse maker, local product distribution company.

AUDIOBOOKS http://www.audible.com/search/ref=a_search_c4_1_1_1_srAuth?searchAuthor=Douglas+Slain&qid=1487524144&sr=1-1

Trump v. Dodd-Frank, new news

Posted on February 7, 2017 at 5:25 PM Comments comments (0)

State Regulators and Trump State attorneys general and state securities commissioners have responded to President Trump’s threats to reduce federal regulation and enforcement efforts in the financial services industry. Both New York Attorney General Schneiderman and Maria Vullo, the superintendent of New York's Department of Financial Services ("DFS"), have made it clear that they will exercise broad authority to stand in the way of any Federal effort to dismantle the Dodd-Frank Act, as Trump has promised to do.

Schneiderman said, "Any attempt to gut these consumer and investor protections would . . . embolden those who seek to defraud and exploit everyday Americans. The States are the back stop, the states are the next line of defense after the federal government," and, "[i]t is embedded in our system of jurisprudence that state laws must be respected.” Each of the 50 states has some form of "Blue Sky" law that regulates the offer and sale of securities. In addition, multiple federal statutes grant state attorneys parallel enforcement authority, and this includes the Truth in Lending Act, the Fair Credit Reporting Act, and the Dodd-Frank Act.

Under Dodd-Frank, a state attorney general or state securities regulator is authorized to bring a civil action to enforce provisions of the Act. State attorneys general and state securities regulators will challenge the Trump administration with an expansion of state-level activity to monitor industries benefiting from a decrease in federal regulation. As Schneiderman put it, "The states are the next line of defense."

Secondary Market

Posted on December 9, 2016 at 5:20 PM Comments comments (0)

Secondary Market in Exempt Offerings

The exempt offering secondary market, largely governed by Rule 144A, is growing rapidly.

What is Rule 144A?

The following transactions are conducted under Rule 144A: a) offerings of debt or preferred securities by public companies; b) offerings by foreign issuers that do not want to become subject to U.S. reporting requirements; and c) offerings of common securities by non-reporting issuers (i.e., “backdoor IPOs”). An issuer who intends to engage in multiple offerings often has a “Rule 144A program.” Rule 144A programs are established to offer debt securities on an ongoing basis. They are similar to “medium-term note programs,” but they are unregistered and can be designed for sales to QIBs.

Among the advantages of using Rule 144A programs are (1) no public disclosure of innovative structures or otherwise sensitive information; (2) fewer FINRA filing requirements; and (3) reduced liability exposure under the Securities Act. Rule 144A is a non-exclusive safe harbor. A reseller may rely upon any applicable exemption from the registration requirements of the Securities Act in connection with the re-sale of restricted securities. In addition, Rule 144A offerings often are made side-by-side with a Regulation S offering (targeted at foreign investors). This permits an issuer to do a multinational offering with a QIB tranche and a Regulation S tranche, and to sell to an initial purchaser outside the United States in reliance on Regulation S, even though the purchaser anticipates and intends immediate resale to QIBs, in reliance on Rule 144A. Rule 144A provides that re-offers and re-sales of exempt offerings or private placements in compliance with the rule are not “distributions” and that the re-seller is therefore not an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

A re-seller who is not the issuer, an underwriter, or a dealer can rely on the exemption provided by Section 4(1) of the Securities Act. Re-sellers that are dealers can rely on the exemption provided by Section 4(3) of the Securities Act of 1933. Issuers must find another exemption for the offer and sale of unregistered securities. Typically they rely on Section 4(2), in reliance on Regulation, or on Regulation S. Affiliates of the issuer may rely on Rule 144A. Re-sellers not eligible for the safe harbor under Rule 144A need to rely on the Section 4(1½) exemption. What is a Section 4(1/2) exemption? If an accredited investor cannot qualify as a “QIB” under Rule 144A, it will seek to use the Section 4(1½) exemption for secondary sales. A Section 4(1½) exemption is a case law-derived exemption that allows private placement re-sales of private placement offerings. Re-sellers rely on Section 4(1), which provides an exemption for non-issuers, underwriters, and dealers, to avoid underwriter status by implementing restrictions that would be required in the case of a Section 4(2) offering by the issuer itself. The Section 4(1½) exemption typically applies to the resale of restricted securities to accredited investors who make appropriate representations. Section 4(1½) also is sometimes used to extend a Rule 144A offering to institutional accredited investors.

The Second Circuit has opined that a person purchasing restricted securities from an issuer is not an underwriter for purposes of Section 4(1) if the purchaser resells the restricted securities to persons who qualify as purchasers under Section 4(2) as described by the U.S. Supreme Court in SEC v. Ralston Purina Co., 346 U.S. 119 (1953), and who acquire the restricted securities in a private offering of the type contemplated by Section 4(2). Securities acquired in a Rule 144A transaction are deemed to be “restricted securities” within the meaning of Rule 144(a)(3) and remain restricted until the applicable holding period expires, and may only be publicly resold under Rule 144 pursuant to an effective registration statement or in reliance on another exemption. After a one- year holding period, re-sales of these securities by non- affiliates are not subject to any other conditions under Rule 144. For a reporting issuer, compliance with the adequate current public information condition requires the issuer to have filed all required reports under Section 13 or Section 15(d) of the Exchange Act.

For a non-reporting issuer, compliance with the adequate current public information condition requires the public availability of basic information about the issuer, including certain disclosure documents and financial statements. For affiliate holders of restricted securities, Rule 144 provides a safe harbor permitting re-sales of restricted securities, subject to the same six-month and one-year holding periods for non-affiliates and to other resale conditions of amended Rule 144. Other resale conditions include: (a) adequate current public information about the issuer, (b) volume limitations, (c) manner of sale requirements for equity securities, and (d) notice filings on Form 144.

What is a “QIB”?

A QIB is any entity included within one of the categories of “accredited investor” defined in Rule 501 of Regulation D, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers not affiliated with the entity ($10 million for a broker-dealer). In addition to the qualifications above, banks and savings and loan associations must have a net worth of at least $25 million to be deemed QIBs. QIBs can be foreign or domestic entities, but must be institutions. Individuals cannot be QIBs, no matter how wealthy or sophisticated.

A broker-dealer acting as a risk-less principal for an identified QIB will itself be deemed a QIB. Eligible purchasers under Rule 144A can be entities formed solely for the purpose of acquiring restricted securities if they satisfy the qualifying QIB tests. A reseller of restricted securities can rely on information other than that enumerated in Rule 144A for its belief that the prospective purchaser is a QIB. The bases for reliance enumerated in Rule 144A are non-exclusive; resellers may have reasonable belief of eligibility based on any number of factors.

A reseller cannot rely on certifications that it knows, or is reckless in not knowing, are false. However, a seller has no duty of verification. In other words, unless the circumstances give a re-seller reason to question the veracity of the information relied on, the reseller does not have a duty to verify the information. The seller must make the purchaser aware that it is acquiring restricted securities and that he securities may only be re-sold pursuant to an exemption from or registration under the Securities Act.

The investor is entitled to know that the securities may be subject to reduced liquidity. Usually the warning is given by placing a legend on the security itself. For example, the note or stock certificate representing securities re-sold under Rule 144A must include a legend (or a notation if using electronic record keeping) stating that the securities have not been registered and, therefore, they may not be re-sold or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, registration.

In addition, the PPM or other offering memorandum used in connection with the Rule 144A offering must include an appropriate notice to investors, such as the following: “Each purchaser of the securities will be deemed to have represented and agreed that it is acquiring the securities for its own account or for an account with respect to which it exercises sole investment discretion, and that it or such account is a QIB and is aware that the sale is being made to it in reliance on Rule 144A.” The offering documents must inform the purchaser that the securities to be acquired can only be re-offered and re-sold pursuant to an exemption from, or registration under, the Securities Act, and that the resold securities have a restricted CUSIP number.

Securities offered under Rule 144A must not be “fungible” with, or substantially identical to, a class of securities listed on a national securities exchange or quoted in an automated inter-dealer quotation system (“listed securities”). Common stock is deemed to be of the “same class” if it is of substantially similar character and the holders enjoy substantially similar rights and privileges. American Depository Receipts (“ADRs”) are considered to be of the same class as the underlying equity security. Preferred stock is deemed to be of the same class if its terms relating to dividend rate, liquidation preference, voting rights, convertibility, call, redemption, and other similar material matters are substantially identical. Debt securities are deemed to be of the same class if the terms relating to interest rate, maturity, subordination, convertibility, call, redemption, and other material terms are substantially the same. Information must be “reasonably current” in relation to the date of re-sale under Rule 144A. This delivery obligation can continue for some time.

To be reasonably current the information must be as of a date within 12 months prior to the re-sale; the most recent balance sheet must be as of a date within 16 months prior to the re-sale; and the most recent profit and loss and retained earnings statements must be for the 12 months preceding the date of the balance sheet. The issuer will prepare an offering memorandum with disclosures normally exceeding the disclosures required to be made available under Rule 144A -- because the offering memorandum often is used as a marketing document. Also, in general, robust disclosure of the issuer’s business and finances reduces liabilities of the issuer and the initial purchasers. Broker-dealers re-offer and re-sell the securities using the exemption provided by Rule 144A. Rule 144A permits the broker-dealer to immediately re-offer and re-sell the restricted securities, even though it has purchased the securities with a view to their distribution.

The availability of Rule 144A does not depend on how much time has expired since the securities were issued or on whether the reseller had investment intent when it purchased the securities. Re-sales under Rule 144A are completely separated from the issuer’s original offering—no matter how quickly thereafter they occur. The documentation used in a Rule 144A transaction is similar to that used in registered offerings, including an offering memorandum and a purchase agreement between the issuer and the initial purchasers (i.e., broker-dealers).

The offering memorandum will contain a detailed description of the issuer, including its financial statements, and the securities to be offered. The form, organization, and content of a purchase agreement for a Rule 144A offering often resembles an underwriting agreement for a public offering but is modified to reflect the manner of offering. In the case of a Rule 144A offering that is combined with a Regulation S offering, the Regulation S offering may be conducted using documents that are based on the country-specific practices of the relevant non-U.S. jurisdiction or jurisdictions. However, the disclosure documents in such a case generally will contain the same substantive information so that investors have the same “disclosure package.”

In connection with offers of debt securities, it is very common to have a Rule 144A tranche offered to QIBs, and a Regulation S tranche offered to non-U.S. persons. However, while Rule 144A securities generally have a restricted period of six months to one year, Regulation S debt securities have a restricted period of only 40 days. Therefore, these tranches are represented by separate certificates to ensure their lawful transfer in the secondary market. The Rule 144A global certificate with a Rule 144A restrictive legend is deposited with DTC, while the Regulation S global certificate with a Regulation S restrictive legend is deposited with a European clearing system. These two securities have different CUSIP numbers and other security identification numbers.

The Rule 144A securities can be re-sold to non-U.S. persons if the buyer certifies that it is not a U.S. person, and the sale otherwise complies with Regulation S. The Regulation S securities can be re-sold in the United States to QIBs if the re-sale complies with Rule 144A. A registration rights agreement would only be applicable to Rule 144A transactions in which the issuer has agreed to register under the Securities Act the securities re-sold in the Rule 144A transaction. The Rule 144A offering process is often similar to the public offering process. The features of this process typically include: solicitation of orders using a “red herring” or preliminary offering memorandum; preparation and delivery of a working term sheet; confirmation of terms with a final offering memorandum; execution of the purchase agreement at pricing; delivery of a comfort letter (if any) from the issuer’s auditing firm at pricing; and closing three to five days after pricing.

Rule 144A offerings do not subject the issuer and the initial purchasers to liability under Section 11 of the Securities Act. Accordingly, the initial purchasers are not entitled to the “due diligence” defense that may be established under Section 11. Liquidity is the primary benefit that comes from holding freely tradable securities rather than restricted securities. Plus some states prohibit some mutual funds and insurance companies from investing more than a certain percentage of their assets in restricted securities. Some investment partnerships and similar entities are subject to comparable restrictions under their organizational documents. Absent an issuer’s agreement to register Rule 144A securities, these entities are limited in their ability to purchase securities in Rule 144A transactions.

Exxon Capital versus Shelf Registrations

The two principal methods to register Rule 144A securities under the Securities Act are “Exxon Capital” exchange offers and Shelf registrations under Rule 415 of the Securities Act. An Exxon Capital exchange offering is a procedure under which securities are privately placed pursuant to Rule 144A and then promptly exchanged for similar securities that have been registered under the Securities Act. This is the preferred means for providing holders of Rule 144A securities with freely tradable securities. It eliminates the need to continuously update a shelf registration statement over its lifetime if any of the investors in the Rule 144A offering are affiliates of the issuer. However, affiliates of the issuer may not participate in an Exxon Capital exchange offer, and broker-dealers also may not participate in these exchange offers.

In addition, all exchanging holders will be required to represent that they acquired the securities in the ordinary course of their business and have no arrangements or understandings with respect to the distribution of the security that is the subject of the exchange offer. Under Rule 415(a)(1)(i), issuers of Rule 144A securities may register the resale of the restricted securities that were sold in the Rule 144A transaction. Registered offerings under Rule 415 are known as shelf registrations. Rule 415(a)(1)(i) permits either a delayed or continuous offering of securities “which are to be offered or sold solely by or on behalf of a person or persons other than the registrant . . . .” The persons covered by this rule include re-sellers holding Rule 144A securities.

Although shelf registrations offer potential liquidity to buyers of Rule 144A securities, the securities remain restricted until they are re-sold under the shelf registration statement. In shelf registrations, the issuer must covenant to keep the shelf registration statement continuously effective for no less than one year in order to ensure the holder liquidity until the resale exemption under Rule 144 becomes available without any limitations on non-affiliates. “Exxon Capital” exchange offers are the preferred means for providing holders of Rule 144A securities with freely tradable securities.

Questions? Contact [email protected]

Why private placements have become so popular

Posted on July 30, 2015 at 12:55 AM Comments comments (0)

Companies decide to list on the exchanges to tap the public markets for capital, unlock liquidity for shareholders, pay off debt, and introduce the company to new investors. Despite these benefits, most companies decide that they are better off remaining private.You can see that fewer companies are going public by looking at the Wilshire 5000 index. The index was created by Wilshire Associates in 1974 as a way to track the 5000 public companies and benchmark the U.S. stock market. The Wilshire 5000 had shrunk to a membership of 3,818 as of September, 2014, showing how fewer companies are listing their shares on the public market. The last time the Wilshire 5000 index had under 5,000 issuers was in 2005.


Twitter provided IPO nay-sayers with reasons against going public. The social networking company went public in a public offering that saw Twitter’s stock price jump 73% in its inaugural day of trading. Twitter has suffered stock downgrades, a sagging stock price, and various criticisms of its business and management.


One of the biggest drawbacks to going public is the need to exceed Wall Street’s quarterly expectations and constant speculation from investors. Private companies do not have to file public financials and investors are often more concerned with long-term performance than jumping in and out of exchange-listed issuers.


In the event that a privately-held company does fail to meet investor expectations, shareholders express their discontent in private and, even if they do comment in the press, it rarely gains the level of attention that a comment on a publicly-traded company garners. A public company takes on significant expenses in staffing the IR department, completing audits, filing documents and reports with the SEC, and complying with regulatory requirements.


The decision to remain private has become an increasingly easy one. It has become more and more unattractive to go through the initial filing process, comply with public company requirements, accommodate short-term minded public investors, conduct earnings calls, regularly answer for (under)performance, and go through all the other duties required of public companies. Furthermore, the growth and evolution of the secondary market has reduced the need to tap the public markets for capital, the biggest motivation to go public. The secondary market, which is populated by institutional investors, family offices, venture capitalists, and other qualified investors, is unlocking liquidity for early investors in private companies.


There has been a shift by private equity investors toward primary financing or through secondary transactions. Companies are more and more voting for financing through private fundraising rounds and facilitating secondary transactions for current shareholders.



Crowdfunding Gone Astray

Posted on July 30, 2015 at 12:50 AM Comments comments (0)

In the Matter of IREECO, LLC and IREECO LIMITED Respondents.





“From at least May 2012 through the present, Ireeco has been acting as an unregistered broker-dealer in connection with the sales of securities involving the EB-5 Visa Program. Ireeco has never been registered with the Commission in any capacity.


“Between at least January 2010 and May 2012, Ireeco solicited foreign investors who wished to invest in the EB-5 Visa Program through regional centers. Ireeco employed a small staff of four to five people located in the United States and operated primarily through its website, www.whicheb5.com.


“According to its website, Ireeco, worked with foreign individuals to determine if the EB-5 Visa Program would work for them. Ireeco stated that it provided foreign investors with the information and education they would need in choosing the right regional center to invest with. The website included information about Parnell and Bartlett’s background and experience. Ireeco claimed to have provided independent EB-5 “education and information” to over 3,300 immigrants from 34 countries.


“It also claimed to have a 100% success rate in that all of its customers were successful in obtaining their I-526 petitions and that those who reached the I-829 petition stage were successful in obtaining their unconditional green card.


“On its website, Ireeco cautioned potential investors that “[e]very regional center is in competition to sell you on why their business plan is better than anyone else’s; they want your money and thus they carefully paint a picture of all the positive aspects of their regional center often without making you aware of any potential negatives.” .


“Although Ireeco is currently listed as the owner of the website, www.whicheb5.com, a “U.S. Admin Office” address for the company out of Greenville, South Carolina appears prominently on the site. Through their website, Respondents offered to assist foreign investors in choosing the right EB-5 projects. As a first step, the potential investor would make a request for information.


Unregistered Broker Activity


“As a first step, the potential investor would make a request for information through the website and then would be contacted. Respondents’ representatives. The objective of that first contact with the potential investor was to ascertain the applicant’s interest in the program and level of knowledge. In at least 10 instances, potential investors already were residing in the U.S. on some other type of temporary visa when they were solicited by Ireeco.


“After the initial call with the potential investor, representatives from Respondents would try to arrange for a more substantive follow-up call with the investor to discuss the next step in the EB-5 investment process. At that point, Respondents proceeded to send EB-5 industry publications and other information about the program to the potential investor via email.


“Respondents also provided the investor with marketing information touting Parnell’s and Bartlett’s experience and expertise in EB-5 investments. If Respondents were unable to set up a follow-up call with the investor and months had passed since that initial contact, Respondents would email the prospect to see if he or she remained interested in the EB-5 Visa Program. Respondents would send these emails automatically to potential customers three months after the first inquiry, and then again after 18 months.


“If Respondents’ representatives were able to arrange follow-up calls with potential investors, they would then talk to the prospects about their background, visa status, understanding of how U.S. businesses operate, area of business in their home country, and interest in a particular geographical area or a specific type of EB-5 project. Based on the information obtained from the potential customer, Respondents determined first if he or she qualified for the EB-5 project, and second, what his or her investment preferences were.


“Once Respondents had a better understanding of the potential investor’s EB-5 preferences and suitability, Respondents gave the investor one or more EB-5 regional center projects as possible choices, as well as background information about those centers. Respondents performed “due diligence” on each of the regional centers it selected for their customers. 15. After investors identified which of the regional centers they were most interested in, Respondents “registered” the customers with the regional center by providing their names, contact information and visa status. The investors then dealt directly with the regional center, with Respondents being consulted by investors on occasion.


“The regional centers provided their offering documents directly to investors. Investors also would contact Respondents from time to time if they had questions about the investments or offering materials. 16. Respondents did not collect fees directly from the investors. Instead, under the “referral partner agreements” first between Ireeco and the regional centers it selected for its customers and later between Ireeco and the regional centers, the centers compensated Respondents for each registered investor who invested funds in an EB-5 offering. Respondents earned the fee once the investor’s I-526 petition (conditional green card) was approved by USCIS. The fee was a commission based on a fixed portion of the “administrative fee” the investor paid to the regional center and averaged around $35,000 per investor.


“From January 2010 through the present, Respondents were paid fees for actively soliciting over 158 foreign investors for selected regional centers. Together, these investors invested a combined total of $79 million in the regional centers. Respondents referred most of the investors to the same handful of regional centers.”


Edited by Private Placement Advisors, LLC. Copyright © 2015 Private Placement Advisors LL