Seeking crowdfunding abroad: you still have to play by US rules

Earlier this month at the American Bar Association Business Law Section Fall Meeting, Paul Dudek, Chief of the SEC’s Office of International Corporate Finance, reminded US companies seeking funding abroad that they are still subject to US regulation. A US company that offers its securities on a foreign crowdfunding platform, for example, must make sure that its offering fits within an exemption from registration under the Securities Act.

The exemptions most likely to be available for a company in this situation are Regulation S and Regulation D.

A company that is not registered with the SEC falls within Category 3 of Regulation S. That means that if you want to rely on this exemption for your foreign adventures, you are going to have to comply with some fairly strict rules, both with respect to the conduct of the offering (for example, getting agreements from the buyers as to how they will resell their securities, including hedging activities) and internal process (for example, legending security certificates, changes to bylaws). If you do not do these things, you cannot rely on Regulation S.

If you want to rely on Regulation D as currently in effect, you may not advertise your offering on the internet so that anyone can see it, even if you sell only to “accredited” investors. (This will change when the SEC adopts rules permitting “general solicitation” for Regulation D offerings.) Even if the platform you are listed on is outside the United States.

So if you are a US company seeking crowdfunding outside the United States and you aren’t absolutely positive that you are covered by an exemption from registration under the Securities Act, get legal help. Please.

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