KMK Law Corporate & Securities Blog

On May 4, 2020, the Securities and Exchange Commission announced that it is providing temporary, conditional relief intended to expedite the offer and sale of securities to be issued by smaller companies affected by COVID-19 that are looking to meet their urgent funding needs through a Regulation Crowdfunding offering. The temporary rules are intended to expedite the offering process. The temporary rules apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020, and August 31, 2020.

Regulation Crowdfunding allows companies to raise up to $1.07 million annually from investors, either through an online portal or broker-dealer, without filing a full-blown registration statement. Authorized by the Jumpstart Our Business Startups Act of 2012, crowdfunding is intended to enable small companies to efficiently raise capital from their community and other non-accredited investors.

The temporary rules allow issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period to submit financial statements and income tax returns certified by the principal executive officer of the company in lieu of financial statements reviewed by an independent public accountant, in order to begin an offering under Regulation Crowdfunding. Such issuers will, however, be required to submit financial statements reviewed by an independent public accountant before the crowdfunding intermediary accepts any investment commitments in the offering. The temporary relief is intended to allow an issuer to provide offering information through the intermediary’s platform and informally gauge investor interest in an offering before going through the effort and expense of preparing financial statements. Additionally, the temporary rules eliminate the requirement that an offering statement must be publicly available for at least 21 days before the issuer closes on an investment.

The temporary relief will be available to issuers who meet certain eligibility criteria, including the requirement that the issuer must have been organized and have had operations for no less than six months prior to the commencement of the offering. Issuers are also required to include clear disclosures (among other required disclosures) that the offering is being conducted on an expedited basis due to circumstances relating to COVID-19 and pursuant to the SEC’s temporary regulatory COVID-19 relief.