1-K filing time again

April is coming, when Reg A filing companies must file their annual reports. And, as has happened in the past, some company will fail to get its 1-K filed in time.  The accountant was busy, the lawyers didn’t nag enough, the dog ate their filings . . .

So what do you do when this happens to you and you have an ongoing offering under Reg A?

Don’t panic. While you have failed to comply with the requirements of Reg A, there’s nothing bad that is going to happen to you on a permanent basis if you follow these rules:

  • If you have an offering open, stop taking money. At 5.30 pm on April 30. If you take any money while you are not in compliance with the Reg A ongoing reporting requirements, you are making an unregistered offering in violation of Section 5 of the Securities Act of 1933, and people who buy in those circumstances have the right to make you take them back and refund their money, with interest. Plus, that unregistered offering may be considered a disqualifying “bad act”.
  • If you have an offering open and are soliciting online, go dark. Take down your offering page. “Offers” may not be made while you are not in compliance, and no, you can’t stick a legend on your page saying you aren’t currently making offers or sales. Kill the offering page and don’t make any offline offers either.
  • Think about making a filing on Form 1-U explaining what is going on. We had previously discussed with the Staff the use of a Form 1-Z for this purpose, but that turns out to be just confusing. So filing a 1-U, while it doesn’t fix your non-compliance, does help explain to the market what is happening, and gives you something to point people to when they ask where your offering went. Make sure the 1-U is not an “offer” of securities in itself! Best if you just discuss your filing obligation as opposed to talking about re-opening your offering in the future.
  • When you eventually file your 1-K, consider whether you need to amend the Form 1-A you have on file. Did the 1-K result in a “fundamental change” to the 1-A? Is the anniversary of the 1-A coming up soon?

We have seen companies in the past continue to offer and sell securities while they are non-compliant with Reg A’s ongoing reporting requirements. That is a clear violation of securities law.

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