Category Archives: Charity

Setting Up an Efficient Crowdfunding Platform

BY Rachael Everly ,CrowdFund Beat Guest Post,

Crowdfunding platforms are a product of technological advancement. However at the end of the day they are a financial solution and their success is dependent on the economic situation at a given time. Many businesses prosper when the economy is booming and all is good. Crowdfunding on the other hand has always prospered when the economy is not doing well, and even during the worst recessions.

During the last recession of 2008, there was a great lack of confidence among banks. This led to a drying up of sources of finance for the small business owner and for individuals who were just starting out. Either their loan applications were outright rejected or they were given such high interest rate offers that they were forced to decline. But with the advent of digitalization came the much flexible option of crowdfunding that led smaller business achieving the necessary finances much cheaply and much easily.

crowdfunding concept. Chart with keywords and icons
crowdfunding concept. Chart with keywords and icons

 

Setting up a crowdfunding platform is an excellent business idea for it is something that the entrepreneurs need. However to be successful it has to meet the finance needs of people successfully.

 

 

  1. Initial set-up

Crowdfunding platforms are a place where investors and people looking for finance gather. So you need to be sure about how you are going to attract investors in your starting days. Your whole business is dependent on them.

You also have to ensure that you offer a “deal” that is both acceptable to investors and the people looking to borrow. The system has to be set up in a transparent way in order to induce trust from all the involved parties. In order to achieve this you will have to focus on a marketing strategy that delivers the maximum information. Information about how you operate, the charges for the borrowers and how are you going to handle the funds at your disposal. You will especially have to convince people that your platform is a secure place to invest. You will need to figure out your marketing channels. The most basic will be your own company blog and possibly even your own in-house developed app (which could be done via crowdfunding).

  1. Developing a brand

Once the crowdfunding concept was new and there were hardly any platforms on the scene. Now competition is arriving and the first mover advantage is long gone. You will have to differentiate yourself from your competition. In the simplest way, it could be by the way of focusing on the aesthetics on your website that is the logo and theme and the usability.

Secondly you should match the features being offered by the competition and where possible streamline your processes even more. You will have to communicate your “differences” via email marketing and company blog. The best way to do this is to provide content that is actually useful for the reader and yet brings your platform to attention.

  1. The technical expertise

At the end of the day customers prefer businesses that provide them with a superb quality service or product. Crowdfunding is essentially a fintech product and thus technology is its backbone. Your crowdfunding platform must not only be user friendly, but it also must be secure and have features that help you make better decisions. For example, Zopa has its own algorithm for deciding which borrowers are more likely to stick to repayment schedules.

In order to succeed it is very important that you analyze your existing competition and see what features you have to match in order to attract customers and what you can do better than them.

 

 

 

Crowdfunding- The Good, The Bad & The (really) Ugly

By Shane Liddell is the CEO and chief Crowdfundologist at Smart Crowdfunding LLC,. Crowdfund Beat Guest post,

Part 3 –The (really) Ugly

Introduction

In Part 1 I covered all of the good things that we have seen as crowdfunding continuously gathers momentum across the world. The future looks bright indeed!

In Part 2 I wrote of changes within the industry, especially within rewards based crowdfunding – the competition which makes it so much harder for the small guys and the Indiegogo platform now giving preferential treatment to corporates, allowing them “…to pay for special placement on Indiegogo’s site, making them more discoverable than other campaigns”. I also explained that although campaign creators are often labelled as scammers when they fail to deliver on their promises, in many cases this is not true at all.

Here in Part 3, we delve into the dark world of extortion, blackmail and a whole host of other not so nice behavior. I’ll cover some real scams where the campaign creator’s intention from the very beginning was to steal people’s money, in some cases, with the crowdfunding platforms help too!

Part 3-The (REALLY) UGLY

Extortion and Blackmail

Ethan Hunt – Micro Phone

During our very early days of offering crowdfunding campaign marketing services, we were engaged by a Mr. Ethan Hunt who had just launched his Micro Phone campaign on the Indiegogo platform. Ethan and I shared a few phone calls as his campaign began to gather momentum and I specifically remember being on a call with him one day, while the money was rolling in, and each refresh of his campaign page showed more and more backers claiming the rewards on offer. Times were good and there was an element of excitement in his voice (and mine too). Who wouldn’t be excited to see such fantastic traction?

Around 4 weeks later, with almost $50,000 raised, Ethan reached out to me to say he’d been contacted by a guy named Michael Gabrill who claimed that he had some negative information about Ethan and that if he did not pay him $10,000 he would release this information to the public through various media channels. Ethan forwarded me the email communications so I could see for myself.

Low and behold, there it was in black and white.

My advice to Ethan at the time was to just ignore this guy, as I was sure that Gabrill was just a typical opportunist money grabber and was probably seeking attention too. Ethan wrote back to him, refusing to pay a single cent but what happened next surprised us both – Garbrill began contacting various media including Pando and even went so far as to create a webpage slandering Ethan and his Micro Phone project.

The story continued and in Ethan’s own words at the time:

“Did Michael Gabrill attempt to extort money from us? Yes, he did, this is fact he has admitted to doing it here and on one of the many webpages he has set up in an attempt to cover his actions and his motives, claiming it was a test to see if we would incriminate ourselves. Incriminate us for what? Running a successful and legitimate campaign? Or refusing to pay him money not to do what he has done, something he threaten(ed) to do if we did not pay him.

What did Michael Gabrill do exactly? Well, he approached me the day after our campaign reached 100% funding which means in laymans terms when our campaign had received enough contributions for our campaign to be successful and for us to receive payment of the funds at the end of the campaign.

It took more than 30 days to reach our goal and our campaign to be fully funded. During this time, Michael Gabrill sat back and waited until there was enough motivation for us as campaign owners to if he could build enough fear of loss by the thought of him getting our campaign closed down to pay him money for his silence.

Why if Michael Gabrill if he really believed the campaign was fraudulent did he not immediately report it? Simple up until the campaign is 100% there would be no motivation for campaign owners to pay him a penny. This was never about him believing there was an issue with the campaign it was about his motivation to gain financially from a successful campaign. Something, we are sure he has done many times before.

Why do we think he has done this before? He waited until we were 100% funded, he claimed he could shut us down, he claimed that we had no intention of delivering anything to contributors and were going to steal their money and he wanted his cut or he was going to have us arrested for fraud.

Michael Gabrill’s only motivation was money, he sent me a link to his first webpage and told me if we paid him it would not go up. That webpage included photos of myself, details Michael Gabrill had obtained from my eBay account (which could only have been accessed by an eBay employee) and he claimed I was a creep or in Australian terms a sex offender. When I refused to pay him and reported him, he had the webpage active in less than 10 minutes. Only an extortionist would have a pre built webpage ready to go to force his victims into paying him to remove it.

Is our campaign is legitimate? Yes it is, we have registered businesses in Hong Kong and Australia, neither Mike or I have ever been investigated for fraud and we have both been successfully running business in Australia, Hong Kong and China for more than 25 years.”

To end the story, Ethan initiated legal action and managed to have all the slandering webpages created by Gabrill removed and received a public apology from the man himself too. In turn, Indiegogo went on to ban Gabrill completely from their platform.

This turned into a very time consuming and costly endeavor for Ethan but unfortunately, there are many Gabrills lurking in the shadows and waiting to pounce.

 

Bob Rohner – RG Energy

Bob signed up with us a few months after Ethan but his story is a different one in that his crowdfunding campaign didn’t really do too well at all. We tried our best but the ‘crowd’ seemed to think that what Bob was attempting to do was nigh impossible.

However, during the third week of his campaign. Bob received an email from someone claiming to be the owner of RG Energy, a company based in Ohio. Bob’s business was registered in Iowa. They emailed Bob stating that because they were using their RG Energy’s company name, he would have to pay $10,000 (yes, coincidently the same amount as Ethan was asked for) in license or royalty fees. What??

After a little research, it turned out that this goon had registered a company by the same name in Ohio AFTER Bob had launched his crowdfunding campaign thinking he could get money out of him by playing this little game. This led Bob to get his legal team involved and the problem swiftly went away.

 

The Scammers – Very few real ones but they are out there!
Intentional scams are very rare. During my time in the industry I have seen no more than 3 or 4 which were clearly scams from the very beginning.
Many labelled as scams today are situations whereby the people involved set out with good intentions, only to find out that what they are attempting to do is either impossible or far costlier than they expected. Crowdfunding campaign first, homework afterwards rarely works.
Julien (Courteville) Buschor – Launching Multiple campaigns helped him steal almost $400,000

During July 2015, a campaign on the Indiegogo platform called Smart Tracker 2 (ST2) caught my attention for the simple reason that it had raised over $20,000 within the first 24 hours. Normally, campaigns that gain this kind of traction so quickly have done their homework and are fully prepared with social media assets before launch. In most cases, they have a substantial number of social media followers. However, when I looked at the Smart Tracker accounts I saw that they barely had any followers at all. In fact, at the time, their Facebook page showed only 149 ‘likes’ and their Twitter account a measly 19 followers. Maybe they’d done a fantastic job of building a targeted email database before launch, was a thought at the time. My suspicions were aroused though which lead me to delve a little deeper.

I returned to the ST2 campaign page and began to scroll through their backer list. As I scrolled down to the very first backer, and began searching through the list of names, low and behold, I began to see some of the same names appear as backer’s multiple times and eventually realized that 7 or more user accounts had contributed to the campaign many times over – a clear sign of self-funding taking place. This raised alarm bells and prompted further investigation.

What I discovered was a first for me. A look at the user account profile that created this this ST2 campaign showed that this was the 4th campaign launched since the beginning of the year by the very same person – Julien Scherer (whose real name turned out to be Julien Buschor) and now it was only July? Ding..ding..ding. The alarm bells grew louder!

Upon further investigation I discovered that Mr Buschor first launched a campaign called Last Crime in January 2015 raising over $7,000 and claiming:

“Last Crime was made with cutting edge technology that can easily analyze data, provide facial recognition, perform phone and email scanning and much more”

A month later yet another campaign had launched by the name of Innovative Swiss Teeth Whitening Machine raising over $ 60,000 and with a tagline of “Swiss White Teeth, the most advanced swiss teeth whitening light with color screen and USB interface

A few short weeks later the Smart Tracker campaign launched and managed to raise just over $18,000. And finally, the ST2 campaign as initially mentioned above.

The answer to the question – How had the Smart Tracker 2 campaign managed to raise over $20,000 so quickly? –  was now fairly obvious as it was clear that Mr Buschor had rolled funds from his other campaigns into this new one.

Armed with this information, we reached out to Mr Buschor using a private email address and began a lengthy exchange of emails over the following few days. Initially he was panicked and changed user names on the campaigns listed above and sometimes became aggressive in his defense, but he did begin to accept that we knew his game. We threatened to report his campaign to Indiegogo and eventually, he did confirm that he had self-funded the ST2 campaign and his defense was made with a claim of “I’ve done nothing wrong as it’s legal so Indiegogo won’t cancel our campaign”

Mr Buschor self-funded his ST2 campaign to the tune of over $20,000, using money collected from previous campaigns to create a sense of popularity in the eyes of the public. No doubt in my mind that we were seeing a real con man in action!

As my marketing agency, Smart Crowdfunding is listed as a ‘Partner’ on Indiegogo itself, I reached out directly to their Trust and Safety division armed with all of the evidence needed to show that Mr Buschor had been scamming the public. I was certain they would listen, or at least reach out to me for more details. Nope. I received a canned email response saying very little except that they would investigate the matter. Did I hear back from them after this? Nope.

Of even more concern was that the ST2 campaign continued and on July 12th was promoted through the Indiegogo newsletter to a huge database of millions of people. Funding continued to ramp up and eventually the campaign raised more than $300,000.

Was it really a scam you may ask? Absolutely! The comments page on the ST2 campaign tells the whole shameful story!

As for Mr Buschor, he was resident in Switzerland and made local news for all of the wrong reasons as seen HERE

 

BioRing- The Amazing Ring That Made $460,000 Disappear

Now, this one had scam written all over it from the very beginning. However, even some notable Crowdfunding Marketing agencies were taken for a ride in the process too.

During mid-January 2016, we (Smart Crowdfunding) received an email inquiry from a Daniel Johnson asking about our services. After a few back and forth emails with our team, this lead to a Skype call booked for the 20th January. For some reason, they had to reschedule and we rebooked a time for 9am on 27th January, this time with a James Lee.

The call went ahead as planned, and James told me all about BioRing and that they were going to launch a crowdfunding campaign to raise the funds to manufacture the product and get it out there into the market. I explained our campaign development and marketing process, and the need to build an audience prior to launching. James asked if we would work on a percentage only basis to which I replied “No” and then went on to explain that without any validation testing we do not know if his product is a good fit for crowdfunding. Upon concluding the call I did say that I would email through our fee structure and the call ended.

My thoughts at the time were that what they were trying to do was nearly impossible, so a few days later I emailed again stating that after careful consideration I could not help them as I felt their product was impossible to develop.

We did not hear from either Daniel or James again.

The BioRing campaign eventually launched in June 2016 and did rack up over $700,000 in funding.

Fortunately, at least some of the backers were refunded, as Indiegogo did not release any of the InDemand money to the campaign owners. The total amount ‘stolen’ is now showing at $424,664 as of today’s date.

Now, that’s a lot of money and has, in effect, added to a community of backers claiming to never back another Indiegogo campaign again as can be clearly seen on the comments section of the BioRing campaign page. There are many other campaigns with such negative comments.

These disgruntled backers have a right to be pissed and there are hundreds of thousands of them who have supported other campaigns that are disgusted with the treatment they receive from Indiegogo themselves.

You can read more about this scam in this excellent investigative article from Sara Morrison here

The ironic thing with BioRing is that the marketing agencies involved – Funded Today (FT), Herscu and Goldsilver (H&G) and Command Partners (CP) – were up in arms when they didn’t get paid after the campaign concluded, having raised over $700,000. It surprises me that none of them thought that this campaign was nothing but a scam from the very beginning, considering FT were taking a 25% cut of funds raised, H&G a 10% cut and I assume CP a minimum 10%….so, a minimum of 45% off the top! Add to this the 5% Indiegogo platform fee and payment processing fees of around 3.5% meaning that BioRing were giving away more than 50% of the backer’s money!

A screenshot of the BioRing campaign team captured prior to the campaign been flagged as fraudulent. Since then all associated team members removed themselves from the campaign, most likely out of embarrassment. 


Crowdfunding Platforms Expand Financing to Regions That Suffer From Venture Capital Drought

By Anum Yoon, Crowdfund Beat Media Guest post,

Venture capitalists tend to back entrepreneurial firms that reflect their own ideas and match their social and educational experiences. This type of financing has resulted in a concentrated amount of funds for business endeavors in specific locales. Venture capitalists are typically wealthy investors, investment banks and other financial institutions with similar interests.

Silicon Valley and Boston benefit greatly from venture capitalism, while struggling entrepreneurial startups across the country are suffering from a venture capital drought.

However, the industry is changing with the expansion of crowdfunding platforms, such as Kickstarter, helping to level the playing field. A recent study from the University of California at Berkeley states that crowdfunding financing is now accessible outside of the traditional startup and technological landscape, with even the restaurant industry jumping into the crowdfunding action.

Crowdfunding Platform Expansion Leads to Nationwide Innovation

Crowdfunding appeals to entrepreneurs and investors looking for a different tribe. Since many venture capitalists (VCs) finance people and ideas similar to their own, women and minority entrepreneurs can benefit greatly from crowdfunding expansion outside of the normal VC region.

The study from UC Berkeley identified specific regions where the majority of financing from VCs are concentrated. The study analyzed data from 55,0005 Kickstarter campaigns and 17,493 venture capital investments that were similar in activities.

The researchers mapped the successful campaigns and financing from 2009 to 2015. What the researchers found was that the Kickstarter campaigns originated from all across the country and from areas not typically financed through venture capitalism. This includes the cities of Chicago, Los Angeles and Seattle.

Venture capitalism was responsible for the financing of entrepreneurial firms in highly concentrated areas. As much as 50 percent of all VC financing concentrates in only four counties within Silicon Valley and Boston.

The study took into account the relative intensity of the crowdfunding platform and venture capital funding in each region. Using this formula, the researchers could account for the differences in population and other factors that might skew the results.

The researchers found that areas with Kickstarter investments were located away from venture capitalist funding. For example, in the Bay area, VC funding is primarily focused in San Francisco and the Peninsula, but Kickstarter funding concentrates in Marin and Napa counties.

According to the researchers, the results could show an inequality in entrepreneurial funding in regions. In areas with Kickstarter technology campaigns, the study found that venture capitalist funding increased as VCs find these new ideas attractive.

Other Crowdfunding Platforms Expanding

The six-year study from UC Berkeley focused on Kickstarter as the crowdfunding platform, but others are expanding their reach across the country in hopes of reviving the entrepreneurial legacy while stimulating the economy and supporting charities.

GoFundMe recently acquired CrowdRise to expand fundraising initiatives for charities. GoFundMe processed the transactions for CrowdRise during 2016, and the platform raised $100 million each month and grew 300 percent year-over-year. The acquisition increases the opportunities for social fundraising and charity fundraising.

Other crowdfunding platforms that small businesses and entrepreneurs are using include Indiegogo, Fundable and RocketHub. Indiegogo launched in 2008 and announced in 2016 that it has added equity crowdfunding to open the door for small investors.

Fundable is an Ohio-based crowdfunding platform that attracts accredited investors for entrepreneurial businesses, such as InstaHealthy USA.

RocketHub offers traditional donation fundraising as well as equity-based crowdfunding through the ELEQUITY Funding platform and Bankroll Ventures.

Now entrepreneurial startups in smaller cities and rural areas have a chance to develop and share their ideas with crowdfunding platforms. Not long ago it was determined that U.S. entrepreneurship was at a 40-year low, but this may soon change.

The American entrepreneurial spirit still exists, it just needs a little financial help from its tribe.

 

2017 Crowdfunding Persons of the Year

 

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Sherwood Neiss, Jason Best. Principals Crowdfund Capital Advisors, LLC

Each year, Crowdfund Beat Media Group assesses the landscape of the crowdfunding industry to identify thought leaders and individuals significantly impacting the evolution of digital finance.   To culminate this search, the Group selects a Crowdfunding Person of the Year, whom it believes has made an indelible mark to advance adoption and growth of the crowdfunding effort.  With Title III of the JOBS ACT, effectively Regulation CF, went live past May, we have identified two individuals that have been working tirelessly and successfully in making crowdfunding a reality, and feel honored to recognize them as 2017 Crowdfunding Persons of the Year.

Jason Best and Sherwood “Woodie” Neiss are Principals at Crowdfund Capital Advisors, where they have advised government agencies, NGOs and global leaders on the merits of crowdfunding and its impact on entrepreneurial activity.   Prior to the expanse of their travels and relationships, including with the World Bank and InterAmerican Development Bank, they initiated Startup Exemption, with Zak Cassady-Dorion, which laid the foundation of the legislative framework that evolved into Title III.

2017-personoftheyear1

 

It is due to these past and ongoing contributions that Crowdfund Beat Media feels compelled and honored to award Woody and Jason 2017 Crowdfunding Persons of the Year.

By Jorge Sanchez, Crowdfund Beat Guest Editor,

Innovation and entrepreneurial activity is driven by entrepreneurs, their ideas, actions, and the relationships formed in the marketplace. While this has been the case for economic growth, the primary funding mechanism we have had in place is not a natural extension of these business processes. We have had a large proportion of the entrepreneurial class being underserved by the capital needed to fund or grow their ventures. This was because the current legal landscape prohibited it.  However, today if a tech startup or business needs capital they have modern technology at their disposal that enables them to leverage their social networks in order to fund their startup or grow their businesses.

As a result of the Great Depression, regulatory actions were taken that imposed limits on where entrepreneurs can seek funding. Fueled by fear and desperation, the risks and power of investing in our nation’s business opportunities were removed from the public and placed in the hands of banks and wealthy investors. Because most people did not have access to these investors, small business, and startup financing became a function of bankers and collateral, not innovation and market demands.

Fortunately, this flaw in our funding landscape has been mended. Through the actions of a few ambitious and determined men, decades-old financial regulation have been amended to reflect modern capabilities and economic reality. Today, markets don’t just function to determine which businesses survive, but also which businesses are born.

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Niess, Zak Cassady, Best

Sherwood “Woodie” Neiss, Jason Best, and Zak Cassady-Dorion are not politicians, they are not lobbyist, nor are they D.C. insiders. The men behind, perhaps the most important policy change of our lifetimes, are entrepreneurs. The three Thunderbirds are businessmen with experiences that awarded them with intimate knowledge about the needs of startups and the pains of raising capital. They did not just embark on a political journey, they instead created The Startup Exemption and to tackled head on the problem, making regulatory change. Their historic campaign lasted just 460 days, culminating in the framework that was adopted and signed into law by president Obama in April 2012.

The journey began with a problem that had been widely acknowledged, but was never addressed. The impact the group has and will continue to have is the direct result of their development of a solution with the collaboration of stakeholders and early thought-leaders like Kevin Lawton, Danae Ringelmann, and Steve Cinelli in the form of a framework that would later go on to become a part of the JOBS Act

In the halls of congress, the trio of entrepreneurs were an anomaly and there was doubt and pessimism that the group could accomplish their task at all, especially not with the absence of a large war chest and an army of lawyers. But perhaps that is exactly why the political neophytes were able to accomplish their lofty goal in a year and a half, instead of the five to ten policy experts predicted.

Those on The Hill turned out to be people that understood technology and how to leverage it, not the technological laggards that policy makers are commonly portrayed as. The group also discovered that they had tapped into a problem with universal support. During a time with an alarming unemployment rate, flat GDP growth, and a slowdown in the flow of cash from banks to small businesses, D.C. lawmakers were happy to be met with a solution for the biggest problem facing the nation.

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Sherwood Neiss, Karen Kerrigan , Jason Best, Douglas Ellenoff on May 16th, 2016 Capitol Hill in DC

In May 2016, Regulation Crowdfunding of the JOBS Act went live and the startup exemption become law. Over half a year later, we have seen a steady and methodical adaptation of the innovation. Jason and Sherwood are now principals at Crowdfund Capital Advisors (CCA), where they advise governmental leaders and stakeholders, like the SEC and the World Bank, on how to draft and implement crowdfunding in order to ignite job creation from the grassroots level.

When asked about the adoption of the regulation so far, the pair expressed optimism and satisfaction. They see success by how it is being embraced by the industry, thoughtfully and with care to ensure the integrity of the law is upheld and the balance of investor’s and entrepreneur’s needs and concerns are maintained. The crowdfunding community looks to amend the laws to further strengthen the fit between the needs of the entrepreneur and the laws regulating them.

Amendments to the original rules are coming to a boiling point. The Fix Crowdfunding act, proselytized by many within the crowdfunding world, aims to make the exemption more friendly and appealing to issuers by raising the limits on funds that can be raised, enabling the use of special purpose vehicles, and removing liabilities away from portals for the issuers who use their services. While any changes to the regulation are being carefully scrutinized to ensure adequate investor protection, Sherwood believes the regulatory bodies are motivated to support job growth by empowering entrepreneurs with access to capital. They will do so with the data and case studies that have been collected since the first iteration of the law went live in May 2016.

Jason and Sherwood’s outlook crowdfunding is bright, they see a thriving asset class which creates a new path to capital for underserved entrepreneurs who collectively make up the largest non government source of employment.

It is for these efforts and their continued commitment to the progression of Crowdfunding, that Sherwood Neiss and Jason Best are being honored as the 2017 Crowdfunding Person of the Year.

 

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SEC Makes Intrastate Crowdfunding A Little Easier

By Mark Roderick CrowdFunding Beat  Sr. contributing editor and crowdfunding attorney with Flaster/Greenberg PC.aaeaaqaaaaaaaaf7aaaajdm2zwu1ywjmlwe2zjgtndljns04mtu3ltzmnza4mde3m2y4ma

The SEC just adopted rules that should make intrastate Crowdfunding easier, at least if State legislatures do their part.

To understand how the new rules help and how they don’t, start with section 3(a)(11) of the Securities Act of 1933, which has been, until now, the basis for all intrastate Crowdfunding laws. While section 5 of the Securities Act generally provides that all sales of securities must be registered with the SEC, section 3(a)(11) provides for an exemption for:

Any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.

In 1974 the SEC adopted Rule 147, implementing section 3(a)(11). That was long before the Internet, and as state legislatures have enthusiastically adopted intrastate Crowdfunding laws since the JOBS Act of 2012, some aspects of Rule 147 have proven problematic. The rules just adopted by the SEC fix some of the problems of Rule 147:

  • In its original form, Rule 147 required that offers could be made only to residents of the state in question. The revised Rule 147 says it’s okay as long as the issuer has a “reasonable belief” that offers are made only to residents.
  • In its original form, Rule 147 required issuers to satisfy a multi-part test to show they were “doing business” in the state. Under the revised Rule 147, an issuer will be treated as “doing business” if it satisfies any one of several alternative tests.
  • The revised Rule 147 provides safe harbors to ensure that the intrastate offering is not “integrated” with other offerings.
  • In its original form, Rule 147 provided that securities purchased in the intrastate offering could not be sold except in the state where they were purchased for nine months following the end of the offering. The revised Rule 147 provides, instead, that securities purchased in the intrastate offering may not be sold except in the state where they were purchased, for a period of six months (not six months from the end of the offering).

Those are all good changes. But the SEC didn’t stop there. In addition to changing Rule 147 for the better, the SEC has adopted a brand new Rule 147A. Rule 147A more or less begins where Rule 147 leaves off and adds the following helpful provisions:

  • Most significantly, offers under Rule 147A may be made to anyone. That means the issuer may use general soliciting and advertising – and the Internet in particular – to broadcast its offering to the whole world. Purchasers – the investors who buy the securities – must still be residents of the state, but offers may be made to anybody.
  • The issuer doesn’t have to be incorporated in the state, as long as it has its “principal place of business” there – defined as the state “in which the officers, partners or managers of the issuer primarily direct, control and coordinate the activities of the issuer.” Thus, a Delaware limited liability company could conduct an intrastate “offering in Indiana, as long as all the officers and managers live and work in Indiana.

Why did the SEC bother to create a whole new Rule 147A to add these provisions, rather than just adding them to Rule 147?

The answer is that Rule 147 is an implementation of section 3(a)(11) of the Securities Act, and if you look at section 3(a)(11) you’ll see that the additional provisions in Rule 147A – allowing offers to everybody, allowing a non-resident issuer – are prohibited by the statutory language. To add these provisions, the SEC had no choice but to create a new Rule 147A that is entirely independent of section 3(a)(11).

And there’s the rub. Many of the existing intrastate Crowdfunding laws require the issuer to comply with Rule 147 and section 3(a)(11). Texas, for example, says:

Securities offered in reliance on the exemption provided by this section [the Texas intrastate Crowdfunding rule] must also meet the requirements of the federal exemption for intrastate offerings in the Securities Act of 1933, §3(a)(11), 15 U.S.C. §77c(a)(11), and Securities and Exchange Commission Rule 147, 17 CFR §230.147.

This means that issuers in Texas will not be allowed to conduct an offering under the more liberal provisions of Rule 147A until the Texas State Securities Board changes that sentence to read:

Securities offered in reliance on the exemption provided by this section must also meet the requirements of the federal exemption for intrastate offerings in the Securities Act of 1933, §3(a)(11), 15 U.S.C. §77c(a)(11), and Securities and Exchange Commission Rule 147, 17 CFR §230.147, or, alternatively, the requirements of the federal exemption for intrastate offerings in Securities and Exchange Commission Rule 147A, 17 CFR §230.147A.

To those who have spent the last three years pushing intrastate Crowdfunding laws through state legislatures, it might look as if the boulder has rolled back down the hill. But there might also be a silver lining. Almost all the state rules were adopted before Title III became final, and almost all include very modest offering limits. Now that Title III is working as promised, Rule 147A might present an opportunity for legislatures not just to take advantage of the more liberal provisions, but also to raise offering limits and make other adjustments, seeking to make their state rules more competitive with the Federal Title III rules.

In the big picture, the SEC has once again proven itself a fan of Crowdfunding. And that’s good.

Questions? Let me know.

Mark Roderick is one of the leading Crowdfunding lawyers in the United States. He represents platforms, portals, issuers, and others throughout the industry. For more information on Crowdfunding, including news, updates and links to important information pertaining to the JOBS Act and how Crowdfunding may affect your business, follow Mark’s blog, or his twitter handle: @CrowdfundAttny. He can also be reached at 856.661.2265 or mark.roderick@flastergreenberg.com.

Trump victory: a bumpy ride or financial opportunities?

CrowdFund Beat  Special Report, 

Trump winning the U.S. presidency is a bigger deal than Brexit, expect enormous volatility, but also important financial opportunities, affirms the boss of one of the world’s largest independent financial advisory organizations.

The observation from Nigel Green, founder and CEO of deVere, comes as multibillionaire real estate mogul and reality TV star Donald Trump wins the race to the White House to become America’s 45th president.

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Mr Green comments: “Buckle up for a bumpy ride in the global markets.  Whether President Trump will, in fact, do what he has said he will do throughout his campaign, or whether it was just soaring rhetoric to whip up his support base, for now, Trump winning is sending shockwaves across the world.  As such, enormous volatility can be expected in the markets.

“The Brexit result was a real shock and created instability in the UK.  But this is a far bigger deal as this creates instability on a much wider, international scale.

“The markets’ main concerns include Trump’s protectionist policies, focusing on potential trade wars with China – America’s largest trading partner – and with Mexico, it’s third largest.

“In addition, with Trump having said certain countries are ‘cheating’ due to their undervalued currencies, currency tensions should also be expected.”

He continues: “Whilst some people are put-off investing because of volatility, many of the most successful investors welcome it.  This is because major buying opportunities are always found where there are fluctuations.

“Fluctuations can cause panic-selling and mis-pricing. High quality equities can then, for example, become cheaper, meaning investors can top up their portfolios and/or take advantage of lower entry points. This all, in turn, means greater potential returns.

“A professional fund manager will help investors take advantage of the opportunities that volatility brings and mitigate potential risks as and when they are presented.

“Anyone serious about enhancing their finances should be using this somewhat unexpected turn of events to create, maximise and protect their wealth.”

Mr Green concludes: “As ever, the best way to benefit from the inevitable key opportunities and sidesteps risks is through real diversification – this includes across asset classes, sectors and geographical regions.”

Yesterday, the deVere CEO said: “With a Trump win we can expect in the immediate aftermath a double whammy negative impact on the market.

“This is because the likely sell-offs will be compounded by the markets having priced in a Clinton victory and were wrong.”

SEC Adopts Final Expanded Intrastate Crowdfunding Rules

By Samuel S. Guzik, CrowdFundBeat special guest editor,  Guzik & Associate

Today the SEC unanimously adopted amendments to Rule 147 and Rule 504, and adopted a new Rule 147A, intended to modernize and facilitate local offerings by companies in their home state.  The final rules are much improved from the proposed rules issued in October 2015, in response to virtually unanimous views of rule commentors.

The only fly in the ointment is that most states will need to update their legislation in order to be able to take advantage on the new, relaxed rules allowing broad internet solicitation. However, sales are still limited to investors in the company’s state.

The new rules will generally take effect in April 2017.

Here is a link to the SEC’s Final Rules Release: https://www.sec.gov/rules/final/2016/33-10238.pdf

Following is the SEC Press Release announcing the adoption of the final rules and a brief summary of the key provisions:

US-SEC-gov

 

SEC Adopts Final Rules to Facilitate Intrastate and Regional Securities Offerings

Rules Provide More Options for Companies to Raise Money While Maintaining Investor Protections

FOR IMMEDIATE RELEASE
2016-226

Washington D.C., Oct. 26, 2016 —The Securities and Exchange Commission today adopted final rules that modernize how companies can raise money to fund their businesses through intrastate and small offerings while maintaining investor protections.

“These final rules, while continuing to provide investor protections, update and expand the capital raising avenues for smaller companies, allowing them to more fully take advantage of changes in technology and business practices,” said SEC Chair Mary Jo White.

The final rules amend Securities Act Rule 147 to modernize the safe harbor under Section 3(a)(11) of the Securities Act, so issuers may continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147.  The final rules also establish a new intrastate offering exemption, Securities Act Rule 147A, that further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state.

To facilitate capital formation through regional offerings, the final rules amend Rule 504 of Regulation D under the Securities Act to increase the aggregate amount of securities that may be offered and sold from $1 million to $5 million.  The rules also apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection, consistent with other rules in Regulation D.  In light of the changes to Rule 504, the final rules repeal Rule 505 of Regulation D.

Amended Rule 147 and new Rule 147A will be effective 150 days after publication in the Federal Register.  Amended Rule 504 will be effective 60 days after publication in the Federal Register.  The repeal of Rule 505 will be effective 180 days after publication in the Federal Register.

*   *   *

FACT SHEET

Exemptions to Facilitate Intrastate and Regional Securities Offerings

SEC Open Meeting
Oct. 26, 2016

Action

The Securities and Exchange Commission is considering whether to adopt new and amended rules that would update and modernize how companies can raise money from investors through intrastate and small offerings.  The rules are part of the Commission’s efforts to assist smaller companies with capital formation while maintaining investor protections.

Highlights of the Final Rules

New Rule 147A and Amendments to Rule 147

The adoption of new Rule 147A and the amendments to Securities Act Rule 147 would update and modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without concurrently registering the offers and sales at the federal level.

Amended Rule 147 would remain a safe harbor under Section 3(a)(11) of the Securities Act, so that issuers may continue to use the rule for securities offerings relying on current state law exemptions.  New Rule 147A would be substantially identical to Rule 147 except that it would allow offers to be accessible to out-of-state residents and for companies to be incorporated or organized out-of-state.

Both new Rule 147A and amended Rule 147 would include the following provisions:

  • A requirement that the issuer has its “principal place of business” in-state and satisfies at least one “doing business” requirement that would demonstrate the in-state nature of the issuer’s business
  • A new “reasonable belief” standard for issuers to rely on in determining the residence of the purchaser at the time of the sale of securities
  • A requirement that issuers obtain a written representation from each purchaser as to residency
  • A limit on resales to persons residing within the state or territory of the offering for a period of six months from the date of the sale by the issuer to the purchaser
  • An integration safe harbor that would include any prior offers or sales of securities by the issuer made under another provision, as well as certain subsequent offers or sales of securities by the issuer occurring after the completion of the offering
  • Legend requirements to offerees and purchasers about the limits on resales

Amendments to Rule 504 and Repeal of Rule 505

Rule 504 of Regulation D is an exemption from registration under the Securities Act for offers and sales of up to $1 million of securities in a 12-month period, provided that the issuer is not an Exchange Act reporting company, investment company, or blank check company.  The rule also imposes certain conditions on the offers and sales, with limited exceptions made for offers and sales made in accordance with specified types of state registration provisions and exemptions.  The amendments to Rule 504 would retain the existing framework, while increasing the aggregate amount of securities that may be offered and sold under Rule 504 in any 12-month period from $1 million to $5 million and disqualifying certain bad actors from participation in Rule 504 offerings.  The final rules also would repeal Rule 505, which permits offerings of up to $5 million annually that must be sold solely to accredited investors or no more than 35 non-accredited investors.

Background

The Commission adopted Rule 147 in 1974 as a safe harbor to a statutory intrastate exemption, Section 3(a)(11), which was included in the Securities Act upon its adoption in 1933.  Commenters, market participants and state regulators have indicated that the combined effect of the statutory limitation on offers to persons residing in the same state or territory as the issuer and the prescriptive eligibility requirements of Rule 147 limit the availability of the exemption for companies that would otherwise conduct intrastate offerings.

The $1 million aggregate offering limit in Rule 504 has been in place since 1988.

Effective Date

Amended Rule 147 and new Rule 147A would become effective 150 days after publication in the Federal Register.  Amended Rule 504 would become effective 60 days after publication in the Federal Register.  The repeal of Rule 505 would become effective 180 days after publication in the Federal Register.

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Reg A Success Stories

At Dealflow’s Crowdfunding Conference in NYC last week one of the speakers (a good friend of mine) said that only 2 Reg A+ offerings thus far have closed (been successful), one in real estate (Fundrise) and one in automotive (Elio Motors, a FundAmerica/StartEngine/Hambrecht/Jumpstart customer).

That’s incorrect.

FundAmerica has, thus far, been a technology and compliance service provider to 11 Reg A+ offerings. Of those, 3 have “failed”, meaning they did not reach their minimums and investors were refunded from escrow. Of the other 8, 6 have met their minimums (and started receiving disbursements from escrow even as they continue to raise capital) and 2 are just launching this week which I am extremely confident that they too will hit their minimums and, thus, be successful.

So, 8 out of 11 are “successful” offerings. Of those, only 1 is now listed (Elio, on OTC). The others are not going the route of DTC qualification and trading. They are doing the job intended by the issuers: raising capital and creating an engaged base of customers-as-owners.

This brings up a discussion that I started awhile ago…
How should we, as an industry, define “success” in Reg A+, and what is the best use of the exemption?

I continue to believe, and the market has thus far proven, that dreams of generating enough momentum for an out-of-the-gate listing on OTC or NASDAQ are, for the most part, foolish and premature. There will be some exceptions to this, of course, as Elio has shown and as another soon-to-launch offering will likely show. Those offerings have either a ridiculously huge and passionate base of investors or solid institutional support that is coupled with decent retail (crowd) interest. But that isn’t most offerings; very few, in fact.

Reg A is, to me, a stepping stone in a company’s capital-markets life cycle. It’s best suited for businesses that have previously raised some capital, who have a real product and are generating revenue, and who want to either raise some pre-IPO capital and/or start engaging a retail/crowd base of investors in their company. “Success” won’t be defined by if or how it’s trading on OTC or NASDAQ but, instead, by the fact that it successfully raised some amount of capital and/or created terrific marketing traction. Some will be common equity, some will be pref’d (such as real estate Reg A offerings where they declare minimum investor returns), and some will be debt. They will remain, as intended by rule, “unrestricted private securities” and not IPO securities as most crowd-investors don’t really care if you plan on publicly trading your stock or not, as that’s not why they are buying it. At some point we will see traditional institutional investors become interested in Reg A offerings, but until then it’s a tough road to build enough of a base and market enthusiasm for a listing.

Then, as the company grows, it can ultimately decide if it wants to take the next step in the capital markets by filing an S-1, doing an IPO and listing on OTC or NASDAQ. This, in my opinion, is the most responsible path for the majority of potential Reg A issuers...use Reg A to raise capital and engage your base, and work towards maturing to the point where you can attract the interest of institutional investors and responsibly afford to be a “fully reporting” company.

So, has Reg A been successful thus far? Yes, absolutely! Numerous businesses in automotive, medicine, aeronautics, brewing, gaming, and real estate have raised money and engaged their customers, suppliers, employees and business partners using Reg A. Are any of them trading on an exchange? Other than Elio, none of them are, and that’s a good thing as they aren’t ready for it.

Industry professionals need to set expectations on this. The lesson has already been learned that without a strong (VERY STRONG) marketing commitment from and by the issuer directly, regardless of which brokers or platforms are involved, the offering will (“will“, not “might“) fail. Even with that, the realities of how much will actually be raised or how long it will take to raise it have categorically shown that the answers to those will be “less than overly-enthusiastic people had hoped” and “longer than anyone expected“. But, in the end, if structured correctly for the intended audience and if marketed correctly to that audience, then the company will get some capital and the crowd will become part of the ownership. The offering will have been a success

Oh, and I would **LOVE** to name all the successful issuers using FundAmerica’s services, but my General Counsel is locking me down on that for fear that some regulator will misconstrue that as “soliciting” or “recommending” them as investments. {sigh} So we at FundAmerica and FASTransfer will just keep doing what we do: quietly & efficiently helping hundreds of issuers, broker-dealers, platforms, portals, and investment advisers frictionlessly, and in compliance, raise and manage billions of dollars in capital from tens of thousands of investors via our technology and back-office services.

 

 Scott Purcell
CEO
FundAmerica, LLC

 

About the Author: Scott Purcell is the CEO of FundAmerica, a fintech services provider to the emerging equity and debt crowdfunding industry. His firm provides escrow, payment processing, and compliance technology for numerous broker-dealers, investment advisers, portals and others who make a business of online capital formation pursuant to rules now in effect thanks to the  JOBS Act. FASTransfer is the only tech-driven SEC registered transfer agent focused on the crowd-industry. He is an active Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”.

Legal Disclaimer:
These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice. I am not advocating, advising or recommending anyone purchase any specific or general investment of any type, ever. The issues discussed include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.

Attorney Sanctioned by SEC for Unregistered Broker-Dealer Activity

By  Bret Daniel , Wealthforge.com, CrowdfundBeat Guest Post,

The SEC crackdown on unregistered entities continues to grab headlines. Recently, we wrote about the importance of complying with the broker-dealer registration requirement under Section 15(a) by highlighting the latest violations by portfolio managers, online platforms, and individuals.

We suggested that anyone that helps to facilitate a securities offering, even in the broadest sense, should consult a lawyer about the necessity of registering as a broker. The most recent SEC enforcement action, however, demonstrates that even lawyers can get tangled up in the wide net cast over unregistered broker-dealers.

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EB-5: Visa or Security?

Mark Ivener was a partner at the California-based law firm Ivener & Fullmer, LLP (both “Respondents”).1 Ivener specialized in immigration law and regularly counseled clients on how to qualify for EB-5 visas under the Immigrant Investor Program. The program allows foreign investors to obtain an EB-5 visa—and permanent resident status for themselves, their spouses, and their children—by investing $1 million2 in a commercial enterprise in the United States that creates or preserves at least ten full-time jobs for American workers.  A prevalent vehicle for making such an investment is through a Regional Center. Regional Centers are allocated a certain number of EB-5 visas for qualifying investments that typically take the form of limited partnership interests, a security under federal securities law. When Ivener counseled clients on how to qualify for EB-5 visas, he referred them to at least one Regional Center. The relationship between Ivener, his firm, and that Regional Center was formalized in a “Referral Services Agreement” that provided for referral commissions. In effect, Ivener was advising his clients to invest in EB-5 securities, and further, receiving transaction-based compensation from those investments. From January 2009 to December 2011, Ivener earned commissions totaling $450,000.

The SEC determined the Respondents’ actions were in violation of Section 15(a)(1) of the Exchange Act. Commonly known as the “registration requirement,” Section 15(a)(1) makes it unlawful for an unregistered entity “to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security.” Per the terms of a settlement offer, the SEC ordered Respondents to pay $450,000 in disgorgement and $87,855 in interest. Based on the plain language of the statute and broad application by the SEC, it is unsurprising for those versed in securities law that Ivener’s conduct rose to the level of “effecting” or “inducing” the purchase of securities. For Ivener, however, by all accounts an immigration expert, the pitfalls and minefields of securities law may have been completely foreign.

Transaction-Based Compensation

This not the first time we have seen EB-5 matching, a prevalent practice, result in SEC enforcement action.  We provided analysis about one such case relating to a Florida company, Ireeco LLC, and a related foreign entity.

In the Ivener Order, the SEC notes that the Regional Center, the investment vehicles, and the managers “paid commission to anyone who successfully facilitated the sale of limited partnership interests to new investors.” The SEC explicitly classified the commission as transaction-based, but did not provide details on the commission structure.

In the Ireeco case, the sanctions totaled nearly $3.2 million dollars in disgorgement plus prejudgment interest.3 There, the respondent’s illicit commissions were a set percentage of a related flat-fee, but the commissions were contingent upon the investor receiving a condition green card. Therefore, although the Ireeco respondents’ commission was independent of the size of the investment, it was contingent upon a successful closing.

Regardless of what technically qualifies as transaction-based compensation, the range of activities garnering enforcement activity highlights some very important points: (a) a broad range of commission structures may draw ire from the SEC and (b) transaction-based compensation may not be dispositive of whether one is in violation of Section 15(a).

Other Factors to Consider

Generally, “[a] person effects transactions if he or she participates in securities transactions ‘at key points in the chain of distribution.’4 Transaction-based compensation is a clear indicator of participation in key points of the securities distribution chain. However, it is only one of several factors. Other activities to consider include:

  • Selecting the market to which a securities transaction will be sent
  • Assisting an issuer to structure prospective securities transactions
  • Helping an issuer to identify potential purchasers of securities
  • Helping purchasers to identify potential security offerings
  • Soliciting securities transactions (including advertising)
  • Participating in the order taking or routing process
  • Operation or control of electronic or other platforms to trade securities

Such broad framing affords the SEC flexibility, and enforcement action like that taken against Mr. Ivener and his firm illustrates the Commission’s commitment to rooting out and shutting down unregistered brokers in every field.

Bret Daniel

Bret is part of the legal team at WealthForge where he manages client contract flow, internal policy development, and contributes thought leadership on issues ranging from tax to employment law. Bret brings a small business background to WealthForge and is currently a law student at the University of Richmond

Improving Legal Documents in Crowdfunding: New Tax Audit Language for Operation Agreements

By Mark Roderick CrowdFunding Beat  Sr. contributing editor and crowdfunding attorney with Flaster/Greenberg PC.

Last year I reported that Congress had changed the rules governing tax audits of limited liability companies and other entities that are treated as partnerships for tax purposes. The changes don’t become effective until tax years beginning on or after January 1, 2018, but because most LLCs created today will still be around in 2018, it’s a good idea to anticipate the changes in your Operating Agreements today.

Under the current rules, the IRS conducts audits of LLCs at the entity level through a “tax matters partner” (normally the Manager of the LLC), and collects taxes from the individual members. Under the new rules, the IRS will continue to conduct audits at the entity level, but will also collect taxes, interest, and penalties at the entity level. That puts the LLC in the position of paying the personal tax obligations of its members, a drain on cash flow every deal sponsor will want to avoid.

Naturally, there are exceptions to the new rules and exceptions to the exceptions. Trouble sleeping? I’ll send you a detailed summary.

Consult with your own tax advisors, of course, here’s some language for your Operating Agreements that gives the deal sponsor maximum flexibility:

Tax Matters.

  1. Appointment. The Manager shall serve as the “Tax Representative” of the Company for purposes of this section 1. The Tax Representative shall have the authority of both (i) a “tax matters partner” under Code section 6231 before it was amended by the Bipartisan Budget Act of 2015 (the “BBA”), and (ii) the “partnership representative” under Code section 6223(a) after it was amended.
  2. Tax Examinations and Audits. At the expense of the Company, the Tax Representative shall represent the Company in connection with all examinations of the Company’s affairs by the Internal Revenue Service and state taxing authorities (each, a “Taxing Authority”), including resulting administrative and judicial proceedings, and is authorized to engage accountants, attorneys, and other professionals in connection with such matters. No Member will act independently with respect to tax audits or tax litigation of the Company, unless previously authorized to do so in writing by the Tax Representative, which authorization may be withheld by the Tax Representative in his, her, or its sole and absolute discretion. The Tax Representative shall have sole discretion to determine whether the Company (either on its own behalf or on behalf of the Members) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any Taxing Authority, recognizing that the decisions of the Tax Representative may be binding upon all of the Members.
  3. Tax Elections and Deficiencies. Except as otherwise provided in this Agreement, the Tax Representative, in his, her, or its sole discretion, shall have the right to make on behalf of the Company any and all elections under the Internal Revenue Code or provisions of State tax law. Without limiting the previous sentence, the Tax Representative, in his, her, or its sole discretion, shall have the right to make any and all elections and to take any actions that are available to be made or taken by the “partnership representative” or the Company under the BBA, including but not limited to an election under Code section 6226 as amended by the BBA, and the Members shall take such actions requested by the Tax Representative. To the extent that the Tax Representative does not make an election under Code section 6221(b) or Code section 6226 (each as amended by the BBA), the Company shall use commercially reasonable efforts to (i) make any modifications available under Code section 6225(c)(3), (4), and (5), as amended by the BBA, and (ii) if requested by a Member, provide to such Member information allowing such Member to file an amended federal income tax return, as described in Code section 6225(c)(2) as amended by the BBA, to the extent such amended return and payment of any related federal income taxes would reduce any taxes payable by the Company.
  4. Deficiencies. Any deficiency for taxes imposed on any Member (including penalties, additions to tax or interest imposed with respect to such taxes and any taxes imposed pursuant to Code section 6226 as amended by the BBA) will be paid by such Member and if required to be paid (and actually paid) by the Company, may  be recovered by the Company from such Member (i) by withholding from such Member any distributions otherwise due to such Member, or (ii) on demand. Similarly, if, by reason of changes in the interests of the Members in the Company, the Company, or any Member (or former Member) is required to pay any taxes (including penalties, additions to tax or interest imposed with respect to such taxes) that should properly be the obligation of another Member (or former Member), then the Member (or former Member) properly responsible for such taxes shall promptly reimburse the Company or Member who satisfied the audit obligation.
  5. Tax Returns. At the expense of the Company, the Tax Representative shall use commercially reasonable efforts to cause the preparation and timely filing (including extensions) of all tax returns required to be filed by the Company pursuant to the Code as well as all other required tax returns in each jurisdiction in which the Company is required to file returns. As soon as reasonably possible after the end of each taxable year of the Company, the Tax Representative will cause to be delivered to each person who was a Member at any time during such taxable year, IRS Schedule K-1 to Form 1065 and such other information with respect to the Company as may be necessary for the preparation of such person’s federal, state, and local income tax returns for such taxable year.
  6. Consistent Treatment of Tax Items. No Member shall treat any Company Tax Item inconsistently on such Member’s Federal, State, foreign or other income tax return with the treatment of such Company Tax Item on the Company’s tax return. For these purposes, the term “Company Tax Item” means any item of the Company of income, loss, deduction, credit, or otherwise reported (or not reported) on the Company’s tax returns.

iDisclose Launches a Free “SEC Scrubber” Tool for Crowdfunding Issuers

iDisclose Announces Free Online Tool to Conform Documents to SEC Acceptable Format

NEW YORK, NY–(Marketwired – August 17, 2016) – iDisclose announced today that it is offering a free online service to help issuers and their counsel submit the required crowdfunding documents to the Securities and Exchange Commission.

iDisclose CEO Georgia Quinn explained that “we have noticed a lot of people are having trouble uploading the required documents to the SEC’s online system known as EDGAR. This is due to the finicky nature of the system and somewhat archaic technology it uses. Several issuers’ uploads were getting bounced and the error messages were indecipherable.”

Many times, documents are bounced when people attempt to upload them to the SEC’s Electronic Data Gathering, Analysis, and Retrieval system or “EDGAR” system because the actual file does not meet certain technical specifications or contains certain “tags” that EDGAR rejects. iDisclose’s new SEC Scrubber “cleans,” so to speak, the documents of any tags or unacceptable formatting without altering any of the content, so they are able to be filed.

When asked why iDisclose is offering this service for free, Quinn stated, “We are doing this because we believe in the power of crowdfunding and we want to see this industry succeed. This has been a silly stumbling block for hard-working and well prepared issuers, and we want to remove it.”

A beta-version of the SEC Scrubber is being released to the public today and iDisclose is taking comments and feedback to improve the tool in its next release.

iDisclose is an online application that helps entrepreneurs prepare their own legal crowdfunding documents significantly reducing the amount of money paid to attorneys and law firms. iDisclose puts the job of disclosure back into the hands of the entrepreneur, eliminating the inefficiencies of the traditional method, substantially reducing time to comply with the rules and saving thousands of dollars. Rather than provide un-contextualized information about a business to a lawyer, and then relying on the lawyer to prepare the first draft, the entrepreneur responds to an online dialogue to draw out the relevant disclosure issues and the platform organizes the information into a legal document. Throughout the entire process, the entrepreneur is able to collaborate with his or her own team and attorney as needed, and to send their attorney their document drafts for final review and sign-off.

iDisclose also generates a Red Flag report of key issues that must be addressed, which can also be shared with an attorney for further advice and counsel. In addition, the platform creates a list of Risks Factors that are seamlessly organized within the document for easy review by investors.

iDisclose helps:

  • Businesses: The platform allows you to create your own legal documents at a reduced time and cost.
  • Investors: iDisclose provides fulsome disclosure in an easy to evaluate format.
  • Fundraising Platforms: iDisclose allows platforms to offer a value-added service to their users and standardizes the disclosure format across the entire platform.
  • Lawyers: It eliminates much of the drafting drudgery required with the disclosure process, and allows lawyers to focus on the true aspects of being a lawyer (offering real legal counsel, guidance and reviews).

iDisclose was developed by Douglas Ellenoff and Georgia Quinn of Ellenoff, Grossman & Schole, who are both award-winning, NY-based corporate attorneys and globally-recognized figures in the alternative finance space. Having both facilitated hundreds of corporate financings over the course of their careers, the founders harness a deep understanding of the disclosure process, as well as the issues businesses face when raising capital.

iDisclose Partners With Crowdfund Beat Media on Its Title III Crowdfunding and helps to promote what iDisclose is trying to do, which is assist small businesses, who have historically lacked access, receive the capital they deserve. CrowdFund Beat Media International is an online source of news, information, events and resources for crowdfunding.

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