Rule 504 (“Rule 504”) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) provides an exemption from the registration requirements of the federal securities laws which allows issuers to offer and sell up to $1,000,000 of their securities in any 12-month period. Rule 504 is frequently misused to create illegal free trading shares.
As discussed below, fraudsters attempt to make an “end run” around Rule 504 requirements by improperly relying upon state statutes in Delaware, Wyoming, New York and Texas which have been the subject of various SEC enforcement actions. The abuses surrounding Rule 504 are so widespread that the SEC has brought numerous enforcement actions against attorneys rendering legal opinions.
Most often these opinions direct transfer agents to issue certificates representing free trading shares in Rule 504 offerings.
Not surprisingly, DTC often refuses to accept opinions from attorneys rendering bogus opinions to issue free trading shares in reliance upon Rule 504. Read More
On March 25, 2015, the Securities and Exchange Commission (the “SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. The amended rules known as Amended A+ were adopted to facilitate capital-raising by smaller companies. Regulation A+ offerings can be structured in a going public transaction using a direct public offering and initial public offering as part of a going public transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the company to raise initial capital.
Both public and private companies can use Regulation A+ but the exemption cannot be used by companies that are subject to the SEC’s reporting requirements. Regulation A+ may prove to be a popular exemption for private companies in going public transactions where the company seeks to ease into the public company reporting process. Issuers should also remember that Regulation A+ imposes a ban against certain “bad actors” and expanded Regulation D’s disqualification criteria.
Securities Law Blog
On November 12, 2014, the Securities and Exchange Commission (the “SEC”) censured Eureeca.com, a Cayman Islands-based crowdfunding website for its failure to implement procedures “reasonably designed” to prevent U.S. investors from using its funding portal as a means to invest in securities offerings. Read More