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Eureeca Funding Platform Issued a Cease and Desist Order by SEC

By: Kim Wales, 11/13/14  —

An unfortunate yet necessary “Cease and Desist” action was taken by the Securities and Exchange Commission (SEC) against a crowdfunding platform, Eureeca, which is domiciled in Dubai and doing business in the Cayman Islands.

As a platform conducting private placements using Title II of the JOBS Act, which allows General Solicitation, and Advertising for Accredited Investors, Regulation D, Rule 506(c) and Rule 144A has drawn significant attention since September 23, 2013, due to significant changes in rules governing certain private offerings.

Historically, a Regulation D, Rule 506 offering has been exempt from SEC registration, provided that the offering is not publicly advertised and that the purchasers are largely qualified institutions or accredited investors—those whose net worth is greater than $1 million (excluding a primary residence) or whose individual income exceeded $200,000 ($300,000 for couples) for the past two years with the expectation for that level of income to continue in the current year.

Title II of the JOBS Act called for the SEC to lift the ban on mass marketing these offerings, provided that the issuer has taken reasonable steps to verify that the buyers of the private securities are in fact accredited.

In the case of Eureeca, what are some of the things that went wrong?

  1. Eureeca’s posting of securities offerings on its unrestricted website constituted general solicitation and advertising.
  2. Eureeca had a disclaimer on its website that its services were not being offered to U.S. persons.
  3. Eureeca was not registered as a Broker with FINRA or the SEC; nor was there any disclosure of Broker of record on the platform.
  4. The roughly 465 deals listed on the platform were not registered with the SEC.
  5. There was no firewall that prevented at least three U.S.A investors from gaining access to the deal room on the site.
  6. There were no ‘reasonable steps taken to verify’ that investors are “accredited.
  7. “Accredited” investor definition was not disclosed on the platform, as a mechanism to educate the potential investor pool.
  8. Disclosures were lacking on the on the platform

As a result of conduct described, Eureeca willfully violated section 15(a) of the Exchange Act, which makes it unlawful for any broker or dealer to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security, unless such broker or dealer is registered is or associated with a registered broker-dealer.

Penalty

Eureeca will have to pay civil penalties of $25,000 to the Securities and Exchange Commission in 10 installments of $2500 over the next year. In my opinion they got off easy.

Things for Funding Platforms to Remember

  1. Unless you are registered with the Securities and Exchange Commission as a Broker, or partnered with Broker, you cannot legally sell securities to the accredited investor via a funding platform using Title II, Regulation D, 506(c).
  2. The entity “Registered Funding Platform” does not yet exist until the final rules are issued for Title III and FINRA registers the platform to sell securities.
  3. Listing registered broker of record and disclosure documents on the platform is a must.
  4. Seek legal advice and or contact Crowd Finance consulting companies like Wales Capital to ensure that your platform is in compliance.

 

Read the complaint here!

The State of Equity Based Crowdfunding

Washington, D.C.,

August 24, 2014, 700+ days after the JOBS Act was signed into legislation, the SEC still has not released the final rules for Title III: Regulation Crowdfunding.

Over one year ago, February 19, 2013, the nation’s principal leaders and experts on equity and debt‐based financing providing an in‐depth review of the extensive build out and preparation that has taken place to help entrepreneurs’ access capital through online platforms, while protecting the investors who will finance these enterprises. The group touched upon the global advancement of equity‐based crowdfunding, the significant challenges entrepreneurs still face in accessing capital and why it is vitally important that the SEC finalize JOBS Act rule makings.

Watch the Press Conference:

 

Moderator and Host: Karen Kerrigan, President & CEO, SBE Council; Panel of Experts: Sherwood Neiss & Jason Best, architects of the crowdfund investing framework that became law through the JOBS Act and Principals of Crowdfund Capital Advisors; Candace Klein, Founder, Bad Girl Ventures and SoMoLend; Ryan Feit, Co‐Founder, SeedInvest; Vince Molinari, President, GATE Technologies; Sara Hanks, CEO, CrowdCheck; Chris Tyrell, Nehemiah Investments; Kim Wales, Founder of Wales Capital and Chair of the Crowdfunding Professional Association [introduced at 25 minute mark]; Judy Robinett, Entrepreneur, Advisor to Early Stage Companies; Doug Ellenoff, Ellenoff, Grossman & Schole, LLP; Chance Barnett, Founder, Crowdfunder

Crowdfunding Industry Leaders Take on IAC

5/24/2014

Kim Wales and Scott Purcell, industry leaders in securities based crowd funding and Board Members of the Crowdfund Intermediary Regulatory Advocates (CFIRA) recently posted a comment letter on the SEC web site regarding JOBS Act implementation. The comment letter was in direct response to the recommendations provided by the Investor Advisory Committee (IAC) who recently met – reviewing their requests for JOBS Act implementation. CFIRA is a group of industry advocates and participants that have consistently championed the benefits of investment crowdfunding. The IAC is a committee established under the Dodd-Frank Act to advise the SEC.

This specific letter, co-signed by CFIRA board members Scott Purcell and Kim Wales, challenged several of the requests by the IAC – an entity that has not been known for their support of crowd funding.

Thirty – Second Annual SEC Government – Business Forum: Kim Wales

The Securities and Exchange Commission held the Thirty Second SEC Government – Business Forum on Small Business Capital Formation on November 21, 2013.  Kim Wales, a sought after thought leader on the JOBS Act and Crowdfund Investing. Kim was invited as a panelist and provided a presentation that can be downloaded.

The Securities and Exchange Commission has conducted this forum annually since 1982. The event provides small business, their advisors, and their investors with an opportunity to share perspectives and views on a variety of topics important to them.  This is an effective way for the agency and its staff to learn more about the important capital formation issues that the small business sector is facing.

Click here for the Panel Discussion: Crystal Ball: Now that you raised money, what’s next for the company and the markets?

 

SEC and FINRA Released Proposed Final Rules for Title III

Today, October 23, 2013 marks an exciting day for the alternative class of issues for Crowdfund Investments.

The Securities and Exchange Commission (SEC), unanimously voted during an impromptu scheduled Sunshine Meeting to release the Proposed Final Rules for Title III of the Jumpstart Our Business Startup Act (JOBS Act). It was noted that FINRA would also released Proposed Rules for Funding Portals and Form FP-NMA for public comment.  This move is in the right direction to begin putting in place mechanisms that create jobs and spur on capital formation for small emerging business as the JOBS Act was intended, given that unemployment nationally remains high at 7.2%. The proposal as outlined in the meeting included very similar rules to that which is currently in Draft Proposal.

In addition to ensuring the investor protections are in place for the crowd; the rules provide for methods in which the issuers and intermediaries will be able to conduct business.

It was noted that investors should be protected and have confidence that the market being created knows how to price the securities while being diligent in helping to prevent against fraudulent activities. Capital formation is a global process and when approached objectively, capital formation enhances confidence, promotes integrity and fosters market transparency. The criticality of each business owner, investor and intermediary to read and comment on the proposed rules will set the foundation for the development of this burgeoning Crowdfund Investing industry.

Along with investor protections being at the forefront in all comments, Commissioner Stein called for specific comments in three areas:

 

1. How much should an investor be able to invest? Which method should be used to determine such an answer, Income versus NET worth test?

2. Should non-US based Funding Portals be permitted to conduct business in the USA by registering with the SEC and FINRA?

3. What should Issuers responsibility be for tracking securities holder’s records? Specifically, what role could third party service providers offer to manage record holder information.

What should the public expect in the coming days?

 

1. The SEC will issue proposed rules for public comment along with 295 questions that have to be addressed by the public through the letter writing process.

2. FINRA will issue proposed rules for public comment as related to Intermediaries.

Note that the public comment period in each instance for FINRA and the SEC should be 90 days from the day the Final Proposed Rules are listed in the Federal Register in the case of the SEC.

For more information on the JOBS Act, Title I through VII, please contact Wales Capital, 212-736-6884, info@walescapital.com.

Feliciano Center for Entrepreneurship – Crowdfunding

On Friday, September 20, 2013,  the Feliciano Center for Entrepreneurship will host an event with expert panelist on Crowdfunding – Latest Insight on Implementation of the JOBS Act – which will include crowdfunding laws and discussions will cover the series of regulatory changes happening this fall intended to make it easier for early-stage companies to raise capital.

The Feliciano Center for Entrepreneurship was created to enhance entrepreneurship education at Montclair State University by creating an environment where students unleash their talent for creativity, innovation and entrepreneurial drive.  This environment will provide students the opportunity to create and develop ideas that turn into real products or services and ultimately pitch those products and services to successful entrepreneurs.  Students will become entrepreneurs.

Speakers scheduled are: Zak Cassady-Dorion, partner, Crowdfund Capital Advisors; Kim Wales, founder of www.Wales Capital.com, in Manhattan, and board member of Crowdfunding Intermediary Regulatory Advocates; Jonathan Sandlund, founder of www.thecrowdcafe.com; Douglas Ellenoff, member Ellenoff Grossman & Schole, a law firm with offices in Manhattan; and Daryl Bryant, founder of Startup Valley.

SEC Adopts General Solicitation and Advertising in Certain Private Offerings

July 10, 2013

The SEC adopts Title II 506(c) – general solicitation and advertising of the JOBS Act, which removes the uncertainty about the forward progress from Chairwoman Mary Jo White.  As for her priorities at the agency, White said during her March confirmation hearing that her top priority would be to finish rulemaking mandates under the Dodd-Frank and JOBS Act “in as timely and smart a way as possible.”

“Given the explicit language f the JOBS Act as week as the statutory deadline which passed last July, the Commission should act without further delay,” White said before  today’s vote on Title II for general solicitation and advertising.  “This does not mean, however, that the Commission should not take steps to pursue additional investor safeguards if and where such measures become needed.

Wales Capital Summary: JOBS Act TItle II – Adoption

SEC’s Final Rules: http://www.sec.gov/rules/proposed/2013/33-9416.pdf

 

 

 

OSC Staff Consultation Paper 45-‐710 Consideration

On December 14, 2012, the Ontario Securities Commission (OSC) published the OSC Staff Consultation Paper 45-710 Considerations for New Capital Raising Prospectus Exemptions. The Consultation Paper sets out four concept ideas for new prospectus exemptions in Ontario, together with a number of specific consultation questions. The concept ideas are: a concept for an exemption to allow crowdfunding subject to limits for issuers and retail investors, a concept for an offering memorandum exemption, a concept for an exemption based on an investor’s investment knowledge, and a concept for an exemption based on an investor receiving advice from a registrant.

Wales Capital participated in a forum along with other industry thought leaders such as Crowdfund Capital Advisors, SomoLend, Arctic Island, GATE Technologies, Nehemiah Investments, and Ellenoff Grossman & Schole, LLP.

Subsequently, Wales Capital provided comment letters to the OSC for consideration as related to a). Investment Size; b). Oversubscription; c). Two Business Day “cooling period”; d). Revenue Models; e). Rescission Period (Withdrawal Rights).

Read Comment Letters Here

Bloomberg talks Crowdfunding with Kim Wales

Feb. 19 (Bloomberg) — On today’s “Money Moves,” Bloomberg Television focuses on alternative assets and places where investors are investing their money outside of the traditional stock and bond markets. Live with Kim Wales, the founder of Wales Capital, a strategic business advisory firm and Candace Klein, founder of SomoLend, a debt based crowdfunding platform.

Kim is the Chair of the Crowdfunding Professional Association (www.cfpa.org).  Candace Klein is the Co-Chair of the Crowdfund Intermediary Regulatory Advocates (www.cfira.org)

(Source: Bloomberg)

Watch live:

Jason Best at TEDx San Miguel de Allende on Crowdfund Investing

Published on Jan 7, 2013

Jason Best, one of the innovators of the crowdfunding model,
investigates why it has been so successful and suggests ways that it
will transform entrepreneurial endeavors in the future, thus
facilitating a new wave of startups and technologies.

http://www.youtube.com/watch?v=uI_5a7jG7Ss&feature=youtu.be&goback=%252Egde_4615069_member_208953938