Preparing for an A+ grade: testing the waters

Three weeks to go to effectiveness of new Regulation A (we’ll ignore the litigation for the moment), and time for a new topic: “testing the waters” (TTW).

One of the great things about Reg A is the ability to find out, at low cost, whether it’s worth hiring lawyers and accountants to prepare the filing with the SEC. You can use social media to find your crowd and ask them whether they want to invest, and in what amounts, and what kind of security they would be most interested in.

But (and there’s always a “but” in securities law, right?) there are some requirements you need to meet, both at the time you publish your TTW materials, and later. First, there is mandatory information you need to give potential investors, such as telling them you aren’t taking money yet, and that there will be a filing with the SEC they should read before investing. Second, the TTW materials are subject to antifraud rules. As we’ve discussed in the past, “fraud” in securities law includes misleading statements like saying you are confident you’ll deliver product by a date that you don’t truly think you’ll make. Third, if you go ahead and make a filing with the SEC, you’ll have to file all your TTW materials with the SEC, which means paying to get them put into the format for EDGAR (the SEC’s antiquated filing system). And the SEC will read those TTW materials and compare them with the contents of your filings and ask questions about any inconsistencies.

So get a securities lawyer to review your TTW materials!

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