By JL Law, Co – Founder verify investor and Georgia Quinn CEO idisclose.com, CrowdFundBeat guest contributors,
The Securities and Exchange Commission’s website states that the two basic objectives of the Securities Act are to (1) require that investors receive financial and other significant information concerning securities being offered for public sale; and (2) prohibit deceit, misrepresentations, and other fraud in the sale of securities. The objectives for the state blue sky laws are typically similar.
To help address these objectives, both federal and state securities laws prohibit a misstatement or omission of a material fact in connection with an offering of securities. These rules, generally known as anti-fraud provisions, have no exemption. They must always be complied with, even if the securities are registered. Though the mandate to disclose information in a non-fraudulent manner seems simple, determining what is “material” which must therefore be disclosed can be difficult. Generally speaking, something is considered material if there is a substantial likelihood that a reasonable investor would consider the fact to be important in deciding whether or not to invest.
A tool to provide these disclosures is what is commonly called a private placement memorandum (PPM). The PPM, which may sometimes be called a prospectus, offering memorandum, confidential information memorandum, or some similar term is a document which discloses information about the securities offering and the risks associated with an investment in the offering.
For many offerings, a distinct PPM may not be technically be required. A company may satisfy its anti-fraud obligations by providing material information to investors through any means of disclosure. However, a PPM is generally useful as it serves to evidence exactly what was disclosed to an investor and what was not. It also often serves as an important marketing tool to investors; while the PPM is fraught with disclosures of multiple ways investors might lose their money, it serves as a tool of validation that the offering is real and professionally conducted.
To learn more about PPMs, iDisclose and VerifyInvestor.com have prepared this helpful infographic:
Georgia P. Quinn is the co-founder and CEO of iDisclose, a new legal technology company focused on the disclosure needs of small business and startup entrepreneurs accessing capital. Quinn is also a securities attorney specializing in crowdfunding at the firm of Ellenoff Grossman & Schole LLP. Quinn was recognized in 2014 as a Top Female Attorney in New York City by Thomson-Reuters. Earlier this year she was joined by other honored attorneys in a special section about “Super Lawyers” featured in the New York Times. She is on the advisory board for the American Banker Lending and Investing Conference and NextGeneration Startups, an online resource for young entrepreneurs. Wealthforge, an early entrant in the crowdfunding space, has called Quinn one of the top influencers in the private placement industry. Quinn is a senior contributor to Crowdfund Insider, an online crowdfunding publication.
Jor Law is a co-founder of Homeier & Law, P.C., where he practices corporate and securities law, including helping companies take advantage of alternative forms of capital raising such as venture capital, EB-5 finance, Regulation D, Rule 506(c) offerings, Reg A+ offerings, and crowdfunding. Jor Law is also a co-founder of VerifyInvestor.com, the resource for accredited investor verifications trusted by broker-dealers, law firms, companies, and investors who insist on safety and reliability. These verifications are required by federal laws for generally solicited Regulation D, Rule 506(c) capital raises. Jor is frequently sought out as a speaker internationally on the topics of capital raising, investing, EB-5 finance, securities, and other corporate matters relevant to attorneys, entrepreneurs, and investors. Jor is licensed to practice law in California and New York. Jor received his J.D. from Columbia University and his B.A. from UC Berkeley.
*Homeier & Law, P.C., is not affiliated with VerifyInvestor.com.