Category Archives: Hedge Funds

We proudly invite you to 4th Annual Crowdfunding USA on May 4-5, 2017 National Press Club Washington, DC.

Crowdfund Beat Media Presents: 
 
The Important gathering will discuss what’s new on State of Investing and Risk Mitigation through evolving Internet finance space under the label “2017 the Year of 2.0 Equity & SME Finance-Online Lending or Investing- Crowdfunding “Jobs Act” under new congress & President Trump administration”

 See Conference website & Full Agenda Speakers 

 
For Promotional Opportunities, Group Discount, Sponsorship, and how to become a panelist call 1-888-580-6610 or email to info@crowdfundingusa.com

CF USA AGENDA’s  SNAPSHOT

SEC – JOBS ACT – Early Investing
Family Offices – IRA Trust
Rules and Regulations Consideration
Rule 506(c) – Title II Tittle III REG D REG CF
Definition of accredited investor?
Liquidity for the private securities space
Redefining Securities Distribution through Crowdfunding

Real Estate Crowdfunding

Why Hot Real Estate CrowdFunding Is The Next  New Frontier?
Impact of crowdfunding on real estate finance and deal-making
Is Real Estate Crowdfunding Offers An Attractive Alternative For Secure Investments?
The Impact of Technology and Internet on Real Estate Crowdfunding

Trump to Lift Community Bank Regulations (and what that means for house flippers)

Shadow Banking
Dodd-Frank: A Republican Congress
will likely be looking for ways to scale back time and money on business regulation.
Real Estate Crowdfunding and Community Development

Pros & Cons of Internet finance and lending 

2017 State of CrowdFunding

Business of Crowdfunding & Reaching the Goal – How to Make It Happen

Multiple Faces of Crowdfunding on Equity

Future of EB-5 Business Finance & Crowdfunding
Disruption of Equity Crowdfunding on VC’s – Angel Investors
Is Online Lending & Fintech industry here to stay?

Exploring Title II
Why it dominates and will continue to dominate crowdfunding
What initiatives are being pursued to create secondary markets or other means
Effect of IPO window

Regulation A+ Mini IPO
Many of the Reg A deals got pulled this last year.
Is this offering type holding up to investor interest.
Need research on Reg CF, Reg A+ and other offerings.
How much was raised, and how have they performed.
Aftermarket performance of Reg A+ deals

After hours Networking 

Round table discussion

 

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.

An Upcoming Opportunity for Private Companies to Explore Regulation A+ Financing Options

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

Though I regularly speak at national alternative finance events it has not been my custom or practice to independently publicize these events.  So today being Columbus Day, an historic event marking the voyage of Christopher Columbus toward new horizons, I thought this would be as good a day as any to break with tradition and call attention to my next speaking event – open to the public.

On November 10, 2016, I will be joined by more than a dozen of some of the most prominent professionals in the new Regulation A+ financing space, representing the critical areas of a Regulation A+ financing: legal, accounting and marketing.  The event, which is open to the public, is The Regulation A+ Bootcamp.  The venue, and ringleader of this event, is none other than OTC Markets at their headquarters in New York City. And it is specifically targeted toward both early stage and privately held mature companies who are considering their financing options. Co-sponsoring this event is Crowdfund Beat, a leading crowdfunding media publication and event organizer .  Additional details regarding this Event are available here.

OTC Markets has been a leader in supporting a secondary market for Regulation A+ securities. It has also been an outspoken advocate for expanding all avenues of capital formation for both mature companies and SME’s.  Its most recent, visible example is its Petition for Rulemaking filed with the SEC in June 2016 requesting the SEC to expand the use of Regulation A+ to fully reporting companies. Currently, the SEC’s regulations limit the use of Regulation A+ to non-reporting companies and companies reporting under the SEC’s new, streamlined reporting requirements under Regulation A+.  This limitation is nowhere found in the statute mandating Regulation A+, Title IV of the JOBS Act of 2012.

The Petition has already garnered public support from some of the leading industry participants.  Any of you wishing to weigh in on expanding the use of Regulation A+ can do so via the SEC’s website.  You are also free to contact me directly at sguzik@guziklaw.com for more information on the Petition.

And in the interest of full disclosure, as noted in the Petition, I had the privilege of working with OTC Markets in connection with the preparation of the Petition.

Death to the Accredited Investor Rules

By ,  CrowdFundBeat contributing Guest Editor,  Founder and Chief Executive Officer of American Homeowner Preservation LLC

The American Dream is dying. Social mobility in America has all but perished for the majority of Americans. With an extraordinary concentration of wealth amongst the richest, working-class Americans are often shut out of opportunities that could allow them to rise. Investments enable citizens to bolster their incomes and plan their financial futures. But, while rules and regulations prohibit most Americans from participating in higher yielding ventures, our society’s wealth gap will continue to widen.

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The inequality of investment possibilities can be largely attributed to the Security and Exchange Commission’s accredited investor rules. To be considered an accredited investor, an individual must have earned more than $200,000 (or $300,000 in combination with a spouse) in each of the previous two years and, according to the SEC, “reasonably expects the same for the current year.” Accredited status may also be determined by an individual’s net worth, which must exceed $1 million.

Accredited investors typically have access to the most potentially lucrative investment opportunities in the nation. Frustratingly, though, these are available to a miniscule portion of our population. In their 2016 white paper “The Renaissance of the Retail Investor,” Dara Albright, James A. Jones, and Kim Wales explain that “only a paltry 2.8% of all U.S. households are presently considered accredited. In other words, more than 97% of American households cannot access the same investment opportunities as the 2.8%. It is this mind numbing investment opportunity gap that continues to exacerbate America’s wealth disparity.”

Alternative and private investments provide the possibility of hefty returns and wide portfolio diversification for our country’s richest, while leaving non-accredited investors with limited choices such as stocks, bonds, and mutual funds. Albright, Jones, and Wales assert that “investing injustice not only exacerbates the wealth divide, it threatens to destroy America’s economic, social, and political foundation.” As the elite monopolize, average Americans remain confined under their power. Wealth disparity allows those at the top to exercise control over the majority. Employment and education opportunities, politics, consumerism, and even societal and personal perceptions are all manipulated by the wealth-holders.

The wealth gap, and limited investment opportunities in particular, weakens retirement plans for average Americans. For most citizens, retirement security does not exist. According to a 2016 CNBC study, “Americans between the ages of 40 and 55 have an average retirement account balance of $14,500. But estimates suggest that they’ll need up to 20 times that amount to maintain their standard of living after they stop working.” The study concluded that today’s stagnant wages, rising healthcare costs, increasing rents, and massive student loan debt are to blame. Without the prospect of dramatically increasing their savings through higher-yielding investments, retirement remains uncertain for many Americans.

Albright, Jones, and Wales offer a two-part solution to halt wealth inequality and boost retirement savings: “access to alternative investment opportunities must be democratized, and retirement plans must be able to efficiently support micro alternative investing.” Thanks to recent legislation, options are beginning to emerge for non-accredited investors. In 2012, President Obama enacted the “Jumpstart Our Business Startups Act,” known as the “JOBS Act.” Title III (Regulation Crowdfunding) and Title IV (Regulation A+) of the Act allow non-accredited investors access to alternative investments through equity crowdfunding. Online offerings of stakes in small and startup businesses open the market up to investors who were previously shut out. As Albright, Jones, and Wales explain, “Although these issuers must abide by offering thresholds, they are able to sidestep the ‘accredited investor’ rule, which would otherwise limit their offerings to a diminutive number of wealthy investors. As a result, unaccredited investors will be able to access additional investment products that expand well beyond conventional stocks, bonds, and mutual funds.”

Companies have already taken advantage of Regulation A+ to increase the inclusivity of their investments. My company, American Homeowner Preservation, utilizes Reg. A+ to assist families at risk of foreclosure. AHP crowdfunds the purchase of nonperforming mortgages from banks at big discounts, then shares the discounts with struggling homeowners to keep them in their homes. With a $100 minimum investment, almost anyone can invest: the 99% can help the 99%.

Broadening investment possibilities encourages small business development and opens up new sources of capital. But Albright, Jones, and Wales argue that progress cannot end with the JOBS Act. Instead, they call for dissolution of the accredited investor rules altogether, declaring “The fact remains that until the accredited investor definition is broadened or eradicated and/or more retail alternative products emerge, there are only a limited number of ways for retail investors to access alternatives and capitalize on crowdfinance.”

Despite increased opportunities for non-accredited investors, American wealth inequality continues to worsen. At risk is the American Dream in which children of factory workers may grow up to be doctors, or a California orphan may become the world’s greatest technology mogul. The concept of working hard and rising in the social ranks is being buried under the monopolization of our economy by the elite. Equity crowdfunding for non-accredited investors and abolition of the accredited investor rules are small steps toward narrowing the wealth gap and restoring hope, social mobility, and the American Dream.

FinLaw:  Who will buy your company’s stock?

By Scott Andersen, CrowdfundBeat Guest Contributor, Principal at finLawyer.com

There is a maxim used by securities professionals that “stocks are sold, not bought.”  This maxim summarizes the view that for a securities offering to be successful, it needs a broker-dealer to solicit and recommend the offering to prospective investors.

Now with the JOBS Act and companies selling securities directly to investors through general solicitation (advertising), the question is raised:  who will buy your company’s stock?  Moving away from a broker-dealer to reliance on advertising alone requires careful planning for an offering to be successful.  This is difficult for a company that has not raised capital before.  For one, there may be no securities professionals involved in structuring the offering, or marketing or selling it.  Other professionals, such as attorneys, may recommend a Reg A offering but are not retained to provide guidance on how to market a successful offering.  Failure means a blow to a company’s reputation and coffers; simply wasted money.

To raise capital under Rule 506(c) or Reg A, a company must plan carefully its marketing campaign, including how it will attract interest in its securities offering, how it will draw visitors to its website hosting the offering, and why it is likely that an investor will press the “invest now” button and invest?   The company is driving the ship here, and must take responsibility for the offering to be successful.  If the company lacks the experience or confidence to do so, it should hire a broker-dealer to solicit the offering as this will increase its odds of success.  Broker-dealers have existing relationships with investors whom they can solicit and can provide advice on the terms of the offering.  A company initiating a marketing campaign needs to find ways to introduce itself to the public and network to and develop relationships with prospective investors.  The marketing should not be limited to creating a website and video and then expecting investors to come find the company as this alone generally will not work.

A few things to consider:

While a company may view its securities offering as great and a no brainer, others including prospective investors may not necessarily see it the same way.  A company needs to market the offering, and in a manner compliant with securities laws.

Who is the targeted audience?  Customers of a company and true believers are an ideal target audience.  If not them, who?  And what is the marketing strategy for reaching them?

Is a Reg A the right type of securities offering?  Maybe a Reg D or Title III make more sense initially, especially if this is the first time a company is raising capital.  In this way, a company pays lower legal fees while having an opportunity to test its online marketing strategy, the offering is ready to launch faster, and with Title III, a company can tap into a funding portal’s network of investors.

The minimum offering should both help a company take the next step in growing its business and be low enough that it is realistic for the company to successfully raise this amount.

A securities offering is not a race, and speed is a lot less important than success.  Careful planning of a company’s marketing strategy is essential, and the company should obtain the help it needs to be effective, persuasive and compliant.

The key goal for any securities offering is to be successful.  Without a proper marketing strategy, how can any company expect to attract visitors to a website to invest?  Without a proper marketing strategy, the answer to the question of who will buy your company’s stock is clear:  possibly no one.

***

About :Scott Andersen
Scott is principal at finLawyer.com and General Counsel of FundAmerica. He was most recently the Deputy Regional Chief Counsel at FINRA, and prior to that was the Enforcement Director at FINRA and the NYSE, Co-Chief of the Securities Prosecutions Unit of the NY Attorney General’s office, and Asst. Attorney General for the State of NY.  He concentrates his practice on securities law and regulatory defense.

The information in this article is provided for general informational purposes only and is not intended to be legal advice.  The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.

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About Scott Andersen:
Scott is principal at finLawyer.com and General Counsel of FundAmerica. He was most recently the Deputy Regional Chief Counsel at FINRA, and prior to that was the Enforcement Director at FINRA and the NYSE, Co-Chief of the Securities Prosecutions Unit of the NY Attorney General’s office, and Asst. Attorney General for the State of NY. He concentrates his practice on securities and regulatory law.

The information and materials in this article are provided for general informational purposes only and are not intended to be legal advice. The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.

 

Crowdfunding with Self Directed IRA?

“The Fix Crowdfunding Act”

BY Lauren LeibowitzPrincipal at 1st BridgeHouse Securities, LLC, Crowdfund Beat Sr. contributing editor,

The Evolving Crowdfunding Regulations: Now Presenting “The Fix Crowdfunding Act”

On April 5, 2012 the JOBS Act was passed. On October 30, 2015 Title III: Equity Crowdfunding final rules were passed which marked all 7 Titles of the JOBS Act were approved. Recently, the ‘‘Fix Crowdfunding  Act’’ was  introduced to Congress to improve Regulation Crowdfunding.  FINRA and SEC has taken an approach of letting the crowdfunding industry cultivate the business model and the regulators will oversee and implement regulations on an as needed basis. The integration of technology within the private capital markets is monumental since in the 21st century the internet is incorporated in every aspect of your daily life and business.

 9 Funding Portals have been FINRA approved as of May 16. A handful of previously interested business and FINRA member Broker Dealers announced they would not join the crowdfunding marketplace because the current crowdfunding regulations are not conducive to operate in but hope that the ‘Fix Crowdfundung Act’ will be passed in order for them to reconsider joining the crowdfunding marketplace.  Jeff Lynn, CEO and co-founder of Seedrs-a leading UK based investment crowdfunding platform, intended to expand its operations across the pond but believes the current crowdfunding regulations to be “not workable in its current form”, especially burdensome compared to FCA’s crowdfunding regulations that has made the United Kingdom a workable model of successful crowdfunding.  His full statement is below:

“Title III of the JOBS Act, which comes into force today, should have been one of the most important pieces of legislation to impact US fintech in recent years. But although Title III nominally makes it possible for non-accredited (regular) investors to invest in startup businesses and private firms in the US, the legislation’s considerable limitations and poor drafting means we believe it is simply not workable in its current form. Among other things, Title III:

  • Makes it likely that only lower-quality investment opportunities will use equity crowdfunding in the U.S. Title III places such significant burdens on companies seeking to raise capital—making crowdfunding far more expensive, time-consuming and difficult than raising money through other channels (such as institutional or private angel investors)—that businesses will only to turn to crowdfunding as a last resort after more efficient capital-raising methods have failed. The result will be that ordinary retail investors will have access only to those businesses that cannot raise capital elsewhere, which is an adverse selection phenomenon that has not occurred in Europe.
    • Gives insufficient protection given to investors. While Title III and the related regulations place significant focus on limiting the losses that may be experienced by investors, loss of capital is not the only risk in this asset class. Also important is that investors be protected in the case of a business’s success: a successful business can see its valuation increase 100-fold or more, but if the investment has not been properly structured or monitored, investors may receive nothing. Where restrictions interfere with crowdfunding platforms’ ability to provide those protections—which is precisely what Title III does—investors will be significantly worse off in the long run.
    • Reduces the likelihood of businesses succeeding raising capital. One of the key lessons from the growth of equity crowdfunding in Europe is that raising capital in this way is a dynamic process that requires the business to build momentum behind its campaign. Successful crowdfunding campaigns tend to require active outreach, ongoing and multi-modal engagement with prospective investors, and the participation of one or more “anchor” angel or institutional investors, all before the crowd investors start to commit capital in a meaningful way. Title III’s significant marketing restrictions mean that companies will be very limited in their ability to create momentum, which in turn will make it exceptionally difficult for their campaigns to succeed.

“What is particularly unfortunate in all this is that Europe, and the UK in particular, has shown how a regulatory system can facilitate a thriving equity crowdfunding environment, allowing the best companies to raise funds successfully and giving investors the protections they need. US lawmakers would have been well advised to look much more closely at the UK system when developing Title III.

“However, I am hopeful about the future of Title III, and under revised legislation (a version of which is already being considered by Congress), I would love for Seedrs to use it to facilitate investments in the US.

“In the interim, Seedrs will launch stateside under Title II of the JOBS Act, which is limited to accredited investors, and which will offer a specific demographic of investor access to many of the European businesses seeking capital on our platform. Whilst it means that entrepreneurs will only have access to a portion of the American crowd, the opportunity for those investors who are accredited is really exciting. We believe Europe has the fastest-growing ecosystem of early-stage businesses in the world, and the combination of reasonable valuations and fast growth that many companies see on this side of the pond should make them highly appealing investment opportunities for accredited American investors.”

WHAT IS PROPOSED IN THE “FIX CROWDFUNDING ACT”?

 

QUALIFICATION FOR CROWDFUNDING EXEMPTION
  1. Increase the Issuer offering limit to $5,000,000 from $1,000,000.
  2. Take the “Greater of Approach” rather than the “Lesser of Approach” regarding the Crowd’s annual investing limitations.

An investor will be limited to investing: (1) the greater of: $2,000 or 5 percent of the lesser GREATER of the investor’s annual income or net worth if either annual income or net worth is less than $100,000; or (2) 10 percent of the lesser GREATER of the investor’s annual income or net worth, not to exceed an amount sold of $100,000, if both annual income and net worth are $100,000 or more.

CLARIFICATION OF CERTAIN FUNDING PORTAL REQUIREMENTS AND EXCLUSIONS FOR REGULATION CROWDFUNDING.

EXCLUSION OF ISSUERS FROM FUNDING PORTALS

  1. CLARIFICATION OF CERTAIN EXCLUSION REQUIREMENTS FOR FUNDING PORTALS—Section 302 of the Jumpstart Our Business Startups Act

ADD (e) to “Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly—

‘‘(1) made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

‘‘(2) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.’’.

  1. CLARIFICATION OF OTHER OBLIGATIONS TO REDUCE THE RISK OF FRAUD.

Securities Act Section 4A(a)(5) requires an intermediary to “take such measures to reduce the risk of fraud with respect to [transactions made in reliance on Section 4(a)(6)], as established by the Commission, by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person.”

Amend language to read as follows:

“(5) as a minimum to reduce the risk of fraud with respect to such transactions obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;’’.

  1. CLARIFICATION OF LIABILITY OF FUNDING PORTALS FOR MATERIAL MISSTATEMENTS AND OMISSIONS

Securities Act Section 4A(c) provides that an issuer will be liable to a purchaser of its securities in a transaction exempted by Section 4(a)(6) if the issuer, in the offer or sale of the securities, makes an untrue statement of a material fact or omits to state a material fact required to be stated or necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, provided that the purchaser did not know of the untruth or omission, and the issuer does not sustain the burden of proof that such issuer did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. Section 4A(c)(3) defines, for purposes of the liability provisions of Section 4A, an issuer as including “any person who offers or sells the security in such offering.”

In describing the statutory liability provision in the Proposing Release, the Commission noted that it appears likely that intermediarieswould be considered issuers for purposes of the provision. Several commenters agreed that Section 4A(c) liability should apply to intermediaries noting that it “may serve as a meaningful backstop against fraud” and would create a “true financial incentive” for intermediaries to conduct checks on issuers and their key personnel.

However, a large number of other commenters disagreed that Section 4A(c) liability should apply to intermediaries. Some of these commenters stated their views that applying statutory liability to intermediaries would have a chilling effect on intermediaries’ willingness to facilitate crowdfunding offerings. Others cited the cost of being subject to this liability as overly burdensome on funding portals, to the extent that they may not be able to conduct business. Several commenters also explained that the nature of funding portals, as intended by Congress, is distinct from that of registered broker-dealers. According to these commenters, a funding portal’s role is not to offer and sell securities, but rather to provide a platform through which issuers may offer and sell securities. As such, these commenters asserted that it would not be appropriate to hold them liable for statements made by issuers.

Section 4A(c) of such Act (15 U.S.C. 77d–1(c)) is amended by adding the end the following:

‘‘(4) LIABILITY OF FUNDING PORTALS.—For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection  with the offer or sale of a security, it knowingly—  ‘‘(A) made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or ‘‘(B) engaged in any act, practice, or  course of business which operates or would operate as a fraud or deceit upon any person.’’.

EXEMPTION FROM REGISTRATION

  1. Amend Section 12(g)(6) of the Securities Exchange Act

Reader note- (The words in bold are new text)

(6 )Exclusion for persons holding certain securities.— The Commission shall, by rule, exempt, conditionally or unconditionally, securitiesSecurities acquired pursuant to an offering made under section 4(6)  of the Securities Act of 1933 [15 U.S.C. 77d(a)(6)] shall be exempt from the provisions of this subsection.

ALLOWING SINGLE-PURPOSE FUNDS.

  1. Amendment to Section 4A(f) of the Securities Act of 1933:

(f) APPLICABILITY.—Section 4(6) [8] shall not apply to transactions involving the offer or sale of securities by any issuer that—

(1) is not organized under and subject to the laws of a State or territory of the United States or the District of Columbia;

(2) is subject to the requirement to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934;

(3 2 ) is an investment company, as defined in section 3 of the Investment Company Act of 1940, or is excluded from the definition of investment company by section 3(b) or  paragraphs (1) to (14) of section 3(c) of that Act; or

(4) the Commission, by rule or regulation, determines appropriate.

  1. AMENDMENT TO THE INVESTMENT COMPANY ACT OF 1940 :

Add to Definition of Investment Company (Investment Company Act of 1940 Section 3(c))

(c) Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this title:

ADD ‘‘(15) any issuer that holds, for the purpose of  making an offering pursuant to section 4(a)(6) of  the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules.’’.

  1. APPLICATION OF RULES.—Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act (15 U.S.C. 80a– 3(c))— (A) shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106); and (B) shall be considered venture capital  funds for purposes of section 275.203(l)–1 of  title 17, Code of Federal Regulations.

SOLICITATION OF INTEREST

Section 4A of the Securities Act of 1933

  1. Add “(f) SOLICITATION OF INTEREST.—

(1) IN GENERAL.—At any time prior to the  filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if—

(A) no investor funds are accepted by such issuer; and

(B) any material change in the information provided to potential investors during the  actual offering pursuant to such section from  the information provided to potential investors  during such solicitation of interest are highlighted to potential investors in the information  filed with the Commission.

(2) STATUS.—Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of  1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6).

GRACE PERIOD

Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act (Public  Law 112–106), funding portals established under such Act shall make a good faith effort to comply with all such  rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.

CONCLUSION

Regulation Crowdfunding is in its infancy stages. The crowdfunding industry, the SEC and FINRA will hopefully be able to work together to cultivate the crowdfunding marketplace to empower entrepreneurs while protecting the crowd. Crowdfunding today will continue to evolve as different funding models and Issuers use regulation Crowdfunding.

What’s Seed Equity CrowdFunding, known as “REG CF Title III”?

By Rod Turner  founder and CEO of Manhattan Street Capital, Crowdfund Beat  Guest Editor,

The SEC’s new Title III Equity CrowdFunding rules went into effect May 16th. These new rules expand Equity CrowdFunding to allow investors at all wealth levels to invest in startup companies. In June 2015, the SEC also enabled groundbreaking new rules called Regulation A+ which allow anyone to invest in startups and more established companies that need to raise up to $50 million.

The capital raising landscape is making its biggest shift in decades. We now have an online fund raising continuum that extends from startups raising seed capital of as little as $100k up through established companies raising up to $50 million per year.

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U.S. entrepreneurs have never had it so good. Let’s explore the new ecosystem and see what path suits your company best.

Seed Equity CrowdFunding, known as Title III: Startups raising $100k up to $1 mill in seed capital fit the newly expanded main street equity crowdfunding rules nicely. This means that main street investors (both accredited and non-accredited individuals) worldwide can now buy shares in your company. The smaller the capital raise, the less demanding the disclosure rules, with break points at $100k and $500k. We can expect many of the existing equity crowdfunding platforms to now expand to include main street investors.

Vetted financials are required in many cases, and there will be marketing costs to promote your offering to investors. These costs could range from as low as $10k to the $60k range. The marketing cost will vary greatly depending on who is doing the marketing and how well it is executed. It costs money to get the attention of investors. Marketing agencies cannot charge a percentage fee on capital raised. They have to charge for their services in cash. But the good news is that the cost of reaching main street investors is far lower than the cost of drawing in Accredited investors if your company appeals to consumers, which is critically important here.

The initial slate of Title III Funding Portals are SI Portal (Seedinvest), IndieCrowdFunder, StartEngine, NextSeed, UFundingPortal, WeFunder, JumpStart Micro and CrowdBoarders. Many more funding platforms will likely soon be approved by FINRA, and this should be a busy field by the end of 2016. The most attractive Title III platforms will be those that have large scale and use their scale efficiently for Title III startups. IndieCrowdFunder would be my early favorite if they were broad in focus, but they are limiting their scope to Hollywood type companies.

Accredited Equity CrowdFunding:Startups raising $1mill to $4mill and up fit the existing style of equity crowdfunding platforms, raising capital from accredited (wealthy) investors.Think Fundable, CrowdFunder, Angellist, EquityNet as examples of this.

Reg A+: Successful mid stage companies, corporate spinouts (think management buyout) companies considering a reverse merger with a public shell, and select, low risk startups fit Reg A+ platforms. You can raise up to $50 mill per year using Reg A+. You could do your own offering, or you can use one of the funding platforms that exist today (examples include SeedInvest, StartEngine and, of course, ManhattanStreetCapital). Shares can be liquid immediately after the offering. It is also possible to take your company public using Reg A+.

In all forms of online fundraising/CrowdFunding:

  • You will need to make a compelling pitch for your business and the use of the capital, the market and why your company will survive competition in the long haul.
  • Be prepared for open disclosure. You have to be open and avoid hype in order to have a good chance of getting investor engagement and investment and to meet the SEC and FINRA requirements. Expect thousands of investors to be examining your every claim, your LinkedIn profile, and your career to date.
  • It will cost money to do the marketing of your offering. So you must spend money to raise money. As a rule of thumb, think in the range of 2 to 5% of capital raised must be spent to bring investors on board. Excellence in execution here is key. And for Title III and Reg A+, you will have more success if your company appeals to consumer investors – they cost less to reach and will more readily adopt the new models described here than accredited investors will.

Now is the time, and the opportunity has never been greater. We can expect tremendous evolution in the funding landscape as the result of the new expansion of online capital raising options for U.S. and Canadian entrepreneurs.

 

Rod-Turner-headshot-207x200

Rod Turner is the founder and CEO of Manhattan Street Capital, helping successful mid-stage and mature, low risk startups to raise the capital they need to scale faster under the newly-approved criteria of Regulation A+. Turner has played a key role in building six successful companies including Symantec/Norton, Ashton Tate, MicroPort, Knowledge Adventure, and ArtSlant, Inc. He is an accomplished investor who has built a Venture capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris, Ask, and eASIC.

 

 

A New Era begins for Equity Crowdfunding under Title III of the JOBS Act

By Sydney Armani, CrowdFund Beat CEO & Publisher

On May 16, the Securities and Exchange Commission’s (SEC) crowdfunding rules under Title III of the JOBS Act go into effect, allowing early stage and growth companies, which may be unable or unwilling to raise capital from institutional or private investors, to gain access to another source of capital.

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“Title III of the JOBS Act was originally meant to be a game changer for growth companies, adding another way businesses could raise capital in today’s marketplace,” said Alex Castelli, partner and leader of the National Liquidity and Capital Formation Advisory Group at CohnReznick, a top accounting, tax, and advisory firm serving the middle market. “But the SEC has put forth requirements and complexities that might make it extremely challenging for companies to truly consider these opportunities.”

“Whether it is in the public markets, through private equity or venture capital or from individual investors, a solid balance must be maintained between fueling the needs of growth oriented businesses, and investors eager to support the next generation of innovation while maintaining an appropriate level of oversight to protect investors.”

  • The key components of the rules that investors must understand and how they can ensure compliance.
  • The advantages crowdfunding offers, such a decrease in cost of capital, or a wider and more efficient distribution through selling securities through the internet.
  • The challenges that crowdfunding may bring, especially to a private company not accustomed to sharing operational and financial information publicly and as transparently.
  • Understanding the regulations and requirements required, such as utilizing funding portals or registered broker dealers and will have certain disclosure requirements to investors.
  • Inherent risks that come with crowdfunding as a method to raise capital and the appropriate amount of diligence necessary before committing funds.

5 Tips for Everyday Investors Participating in Equity Crowdfunding

Equity Crowdfunding under Title III of the JOBS Act is coming to fruition next week.  Many questions remain and a steep learning curve is inevitable for both investors and entrepreneurs.  Under the new guidelines anyone can participate in equity crowdfunding instead of just accredited investors who meet sufficient levels of wealth. Now anyone can become a startup investor.

Amro Albanna, CEO of ieCrowd, a startup with six years of experience and over 17 Million dollars already raised, has tips to help the everyday investor make smart decisions if they decide to jump in and participate in equity crowdfunding.  ieCrowd will launch its own Title III raise shortly – they currently have two products coming to market – Kite natural mosquito repellant that blocks mosquito CO2 receptors from detecting human blood and the Nuuma air pollution sensor to create a digital nose in smartphones.

“On May 16th and beyond, a large number of startup companies are going to try to raise money using equity crowdfunding,” said Albanna. “Having been in this business for several years now, I can offer the following attributes the everyday investor should look for as they choose a company to fund.”

1.     Already raised capital. Most of these companies are going to be raising money for the first time.  If you can find one that has already been in business for a while and raised capital, you can rest assured they have already learned some of the hard lessons of starting a business.

2.     Has a Board of Directors. Typically most startups begin as a one or two person show.  Single entrepreneurs can have a one track mind and it isn’t always moving in the right direction. Companies with a solid Board of Directors can demonstrate that professionals have done their due diligence and are on board to help with strategic direction.

3.     Knows how to deal with investors. There is going to be a steep learning curve with equity crowdfunding, both for entrepreneurs and investors.  Any company that already has investors knows how to keep them informed and meet their expectations.

4.     Diversifies its offerings. Investors can diversify by investing in several different companies, or by investing in one company that has products and interests in several different markets.  Initially the risk for equity crowdfunding is fairly high but the best bet for success is diversification.

5.     Has an exit plan. A startup that already has plans for an IPO or a purchase has more potential for a successful exit where everyone makes money.

About:

Sydney Armani

sydneyarmani.jpgSydney Armani is a long time silicon valley entrepreneur, with more than twenty ​five ​years experience in Valley’s community acting in both an entrepreneurial and investing capacity. Sydney’s vision for starting and successfully managing innovative companies, like Hello Net ​A ​Mobile telephony appliance services​ on ​Minitel and Videotex​​ A online a first generation of touch Screen tablets. His international experience in trade and International banking takes him around the world, projects with OPIC Overseas Private Investment Corporation for free trade with business engagement in Europe and UAE’s Dubai.
A creative person at heart, he’s working on building CrowdFunding platform Live Crowdfunding demo pitch contest building bridge for new generation of Startup’s in the Crowdfunding industry.
He has been an active speaker and moderator at conferences and plenary sessions on Real Estate crowd​ finance, capital markets, secondary liquidity, disruption in banking and a host of other topics. He has lectured at major universities such as Georgetown and ​Hult International business School​, while authoring articles for or being interviewed by INC Magazine, Housing Wire, Forbes, Fortune, The Economist, amongst others.
​S​ydney is publisher of CrowdFundBeat.com, an online daily crowdfunding news site in US​, Canada​ and UK​​. He is also the organizer of the annual Silicon Valley Meets Crowdfunders conference in Palo Alto, CA​ & CrowdFunding USA at National Press Club in DC​.

 

 

Reg A+ Offering : 8 Tips to Funding Success

By Rod Turner  founder and CEO of Manhattan Street Capital, Crowdfundbeat Guest Editor,

The doors to Reg A+ are now open, with approximately 100 filings, 29 qualified by the SEC, to seek an average $23 million goal. The aggregate capital being sought is now $1.5 billion. The first company to complete a Reg A+ offering, Elio Motors, raised $16.9 millionfrom 6,600 investors at a pre-money valuation of $300 million, and is now listed on the OTCQX.

Reg A+ Offering

 

 

 

 

 

 

 

If you’re considering raising funds with Reg A+, check out the following tips: 

1. Don’t Underestimate The Importance of Consumer Appeal. In private equity, beyond providing enough of the right evidence to prove market validation, the venture capital (VC) investors are the only people you need to impress. In a classic IPO, the marketing and press you can do pre-opening is strictly regulated. But with Reg A+, broader marketing is not only allowed, it will be vital in securing the interest you’ll need to get the investors you require on board. Get the right kind of 360-degree marketing agency in place immediately (which can be surprisingly cost effective when your company is a great “fit” for Reg A+).

Reg A+ is unlikely to be right for your company if your products do not appeal to consumer investors, even if the fundamentals are strong. That is simply because the cost of reaching investors that are attracted to a purely financial return is far higher than for attracting consumer investors. Investors looking for a great return are more likely to wait for Reg A+ to develop a proven track record before acting.

2. Consider this method for raising your up front cash: Angel or VC investors that invest in your company to pay for the cost of the Reg A+ offering can sell their shares in the Reg A+ offering as a reward for them putting up the capital. The percentage of their shares that you offer to make liquid is up to you, the company, to choose. Of course, you cannot guarantee the Reg A+ offering will succeed or that it will reach its maximum. And no more than 30 percent of an offering can be from selling insiders. Typically, there will be a step up in valuation from the Angel/VC round, which can be motivating to the VC or Angel (accredited) investors. There is no Rule 144 holding period restriction on this transaction.

3. Be sure your offering pitch is truly compelling, and plan to launch with high impact marketing. Remember, this is not just about logic and the quality of your team and company; it is about the emotional appeal you create (and your personal credibility). Keep your video short and engaging so the audience watches every second and comes away wanting more. Build momentum rapidly with front-loaded effort. Early traction builds success for the whole campaign.

4. Offer rewards. Attractive awards (similar to those on Kickstarter) can help. A lot in Reg A+

5. Don’t be fooled by the amount of your Test The Waters reservations. Know ahead of time that casually made reservations will overstate the true investment potential on hand. Conservatively compress them down to know where you really stand.

6. Don’t expect rapid results. This is a process that takes time. Your Reg A+ funding will generally take 4-6 months to complete; perhaps the shortest possible time is 90 days if you start the SEC filing and the marketing simultaneously – which I generally do not recommend. The set-up for your TestTheWaters(TM) offering and comprehensive marketing campaign will usually take six weeks.

7. Be careful to keep your valuation at a sensible level. One problem in raising capital from consumer investors is that you may be able to get a valuation that is too high, as they tend to be less valuation sensitive than seasoned angel investors. Yes, you heard that right – you could get more money for less stock in the near term by pushing for the highest valuation possible. But if the valuation isn’t sustainable, your investors will hate you later. You want happy investors who will spread the word about your products and strengthen your brand, for the greatest long-term success.

8. Investor due diligence matters. Be selective about which investors you accept, above and beyond the SEC requirements. Do full due diligence to reduce the risk of future lawsuits and to make for a smoother journey with thousands of shareholders.

With this guidance in hand, you are on the first step to dynamic funding success.

Rod-Turner-headshot-207x200

Rod Turner is the founder and CEO of Manhattan Street Capital, helping successful mid-stage and mature, low risk startups to raise the capital they need to scale faster under the newly-approved criteria of Regulation A+. Turner has played a key role in building six successful companies including Symantec/Norton, Ashton Tate, MicroPort, Knowledge Adventure, and ArtSlant, Inc. He is an accomplished investor who has built a Venture capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris, Ask, and eASIC.

 

 

 

 

 

 

 

 

IRA Services Launches P2P Lending’s First Cloud-based API Driven Retirement Investment Solution

CrowdFund Beat News Wire,

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San Carlos, CA — (April 6, 2016) – IRA Services, the leading provider in custodial trust solutions for non-exchange traded investing, is pleased to announce that it will be unveiling the ISCP™, the first and only real-time cloud-based API driven retirement investment solution for the P2P industry, at LendIt 2016, the world’s largest conference connecting the global online lending community taking place on April 11-12 at the San Francisco Marriott Marquis.

The ISCP ™ allows real-time access to over $12 trillion dollars of capital for the P2P industry by providing platform investors with the ability to effortlessly fund their P2P and Crowdfunding investments through their 401(k) and IRA accounts.

Since the inception of online lending, P2P platforms have had to rely on outdated Self-Directed IRA (“SDIRA”) paper-based processes and infrastructure.  P2P platforms have grown increasingly frustrated in their inability to offer retail customers a simple and cost-effective way to purchase notes using 401(k) and IRA retirement accounts. This lack of automation and integration not only hinders a P2P platform’s ability to scale, it prevents retail investors from maximizing the benefits of tax-deferred P2P investing, such as stronger risk adjusted retirement returns.

As the industry’s first hi-tech retirement investment solution which replaces antiquated legacy systems with a highly-secure web services interface between the trust custodian and the online finance platform, the ISCP™ resolves these deficiencies allowing for a seamless, real-time, inexpensive, painless, and easy to use investment experience.

LendIt attendees will have an opportunity to experience the functionality first hand by visiting booth number 806 at LendIt’s exhibit hall. The IRA Services team will also be available for private meetings and demonstrations.  In addition to sponsoring and exhibiting, IRA Services Chief Strategy Officer, Todd Yancey, will be delivering an illuminating presentation on Tuesday, April 12th from 2 to 230pm PST that will highlight how the shortcomings in current SDIRA infrastructure has resulted in significant investment loss to online lending platforms, and how – through advanced cloud-based API technology – these platforms will now be able to access 12 times more capital by leveraging 401(k) and IRA accounts.

Crowdfinance SDIRA Expert, James A. Jones, referred to the ISCP™ as “an industry game-changer.” He stated, “The ISCP™ completely disrupts the $100 billion SDIRA industry from a cumbersome time-consuming paper-based process to a state-of-the-art fully digital process. ISCP’s real-time transaction processing and bank-grade security enables tax-deferred micro alternative investing to scale to millions of investors with 401(k) and IRA accounts.”

About IRA Services Trust Company

With over $6 billion in assets, IRA Services Trust Company has a 37-year history of specializing in custodial trust solutions for non-exchange traded assets. Today, IRA Services is emerging as the leading innovator of hi-tech SDIRA solutions. The company’s recently introduced ISCP™ is the first scalable, bank-grade secure, cloud-based retirement investment solution for the next-generation of P2P and Crowdfunding investing. By providing an SDIRA integration solution that finally allows financial platforms to seamlessly transact real-time investments from 401(k) and IRA accounts, IRA Services is enabling peer lending and equities crowdfund platforms, as well as traditional financial services providers with the ability to significantly grow their retail account base and increase assets under management. Additional information can be found at https://www.iraservicestrust.com/.

Investment Red Flag Alert – Failure to Launch

Dara

by Dara Albright, CrowdFunding Beat Guest Editor, Co-founder of the FinFair Conference,Recognized speaker, writer & influencer on topics relating to market structure, New Issues, FinTech, P2P & crowdfinance

You see it all of the time. A starry-eyed CEO is out on the capital raising trail luring investors with hopeful promises. Prospective investors are assured that their money will fund the next world changing innovation. They receive well thought out financial forecasts and pitch decks dressed up with hockey stick charts. Of course, every assertion, every number and every eye candy chart hinges on one key element – the product launch.

Anyone who has ever brought a new product to market knows that there are many obstacles to overcome. This is why a great deal of products are delivered late and over-budget. And those are the lucky ones. Some products never get released at all. There are technology glitches. There are sick days. There are staff changes. There are weather interruptions. There are empty promises received from manufacturers. Sometimes there are just too many cooks in the kitchen overseeing or contributing to the product. Occasionally, it comes down to unsuitable contractors awarded the jobs for all of the wrong reasons. At other times, it is simply that the company just cannot get its product to function.

Because veteran CEOs anticipate many of these barriers, they are much more proficient at launching on time and within budget.  By contrast the novice CEO is less prepared to handle unforeseen complications. As a result, his projections are much more “pie in the sky”.

The Obamacare website is a shining example of how inexperience, bureaucracy and cronyism mutilated a product launch and needlessly cost taxpayers hundreds of millions of dollars. By serving as a prototype of missteps, Obamacare can be invaluable in helping investors identify red flags.

Keep in mind that government bureaucracy and cronyism almost always ensures that products will be delivered late and over-budget. But because startup CEOs typically micromanage project development, they really can’t hide behind the “bureaucracy excuse”. Nor are they in a position to compromise their products by hiring unqualified personnel. If a startup’s product launch is overdue, it is usually because of a miscalculation due to management naïveté or an inherent product defect.

As an investor, you are entitled to know about the development status of a product that is being financed with YOUR money. Ask questions. Find out if there have been any staff changes that may have caused production delays. Inquire about technology glitches during beta. Volunteer to test market the product. Perhaps you can provide the expertise, additional capital or relationships necessary to perfect the product and expedite its launch. In some instances it could be worthwhile to allocate more resources towards improving a product that you already have a vested interest in. At other times your best bet is to simply cut your losses and move on. The earlier you know whether or not an investment is worth salvaging, the better.

Click here to view more investment red flags!

Source:

https://daraalbright.com/investmentredflags/