Funding Portal Registration And the JOBS Act
On February 5, 2013, the SEC’s Division of Trading provided guidance on the exemption from broker-dealer registration in Title II of the Jumpstart Our Business Startups Act (“JOBS Act”). The SEC’s FAQs are not rules, regulations or statements of the SEC and the Commission has neither approved nor disapproved them. Section 201(c) of the JOBS Act adds new paragraph (b) to Section 4 which clarifies that a platform can rely on the exemption from broker-dealer registration in Securities Act Section 4(b) until the SEC’s rules permitting general solicitation in Rule 506 offerings are adopted.
The SEC’s FAQs note that the exemption from broker-dealer registration is available only when securities are offered and sold pursuant to Rule 506 of Regulation D.
They confirm that social media or an Internet website is considered to be a “platform or mechanism” under Section 4(b)(1)(A). This section permits a person to “maintain a platform or mechanism that permits the offer, sale, purchase, or negotiation of or with respect to securities, or permits general solicitation, general advertisements, or similar or related activities by issuers of such securities, whether online, in person, or through other means.”
The FAQs also address compensation and clarify the SEC’s broad interpretation of compensation, noting that “Congress conditioned the exemption on a person and its associated persons not receiving any ‘compensation’ in connection with the purchase or sale of such security. Congress did not limit the condition to transaction-based compensation. The SEC interprets ‘compensation’ broadly, to include any direct or indirect economic benefit to the person or any of its associated persons. At the same time, we recognize that Congress expressly permitted co-investment in the securities offered on the platform or mechanism. We do not believe that profits associated with these investments would be impermissible compensation for purposes of Securities Act Section 4(b).”
The FAQs also note that the availability of the exemption from broker-dealer registration should not be construed as suggesting that the entity is not otherwise a “broker” or a “dealer” and refers to SEC guidance on the activities causing broker-dealer status.
The FAQs are located at: http://www.sec.gov/divisions/marketreg/exemption-broker-dealer-registration-jobs-act-faq.htm.
More information about the JOBS Act and funding portals can be found at:
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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