Securities registration exemptions related to crowdfunding. (FE)

Among these requirements, there is a limit on the amount of money that may be raised through the offering and on the amount of money that may be received from any single purchaser. Funds received from the offering must be deposited in a financial institution chartered under the laws of this state. The issuer of the security must be a business entity organized under the laws of this state and authorized to do business in this state. The transaction must meet exemption requirements for intrastate offerings under federal law and Rule 147 adopted by the federal Securities and Exchange Commission. The issuer must also make certain disclosures to purchasers, including that the securities have not been registered and are subject to limitations on resale.

Under one of these crowdfunding exemptions, the offering must be made exclusively through an Internet site registered with the division. The Internet site operator must be a business entity organized under the laws of this state and authorized to do business in this state. The Internet site operator may register with the division without also being registered as a broker-dealer if it satisfies certain conditions, including that, with an exception, it is not compensated based on the amount of securities sold and the fee it charges is a fixed amount for each offering, a variable amount based on the length of time that the securities are offered on the Internet site, or a combination of these fixed and variable amounts. If the SEC adopts rules that authorize funding portals registered with the SEC to receive commissions without also registering with the SEC as broker-dealers, the division must promulgate rules, consistent with the SEC rules, authorizing Internet site operators to receive commissions without also registering with the division as broker-dealers.

The crowdfunding exemption under which the offering is not required to be made through an Internet site prohibits general solicitation or general advertising in connection with the offering unless permitted by the division.

This bill makes the following changes related to these two crowdfunding exemptions from securities registration:

1. Under the bill, an issuer claiming either of these exemptions must have a principal place of business in this state, but is not required to be organized under the laws of this state.

2. Under the bill, any financial institution may hold funds in connection with an offering under these exemptions, as the bill removes the limitation that the financial institution be chartered under the laws of this state.

3. For an offering required to be made through an Internet site, the bill allows the fee received by an Internet site operator to include a commission, which may be based on the amount of securities sold, without the Internet site operator registering as a broker-dealer. The bill also repeals the requirement that the division promulgate rules allowing Internet site operators not registered as broker-dealers to receive commissions if the SEC adopts rules to allow it on a federal level.

4. For an offering required to be made through an Internet site, the bill eliminates the requirement that the issuer's quarterly report to investors be filed with the division, but requires the issuer to provide a copy of the quarterly report to the division upon request.

5. The bill removes references to SEC Rule 147 and replaces them with references to SEC Rule 147A, which is a new intrastate sales exemption rule adopted by the SEC.

The bill also creates a new exemption for offers, but not sales, of securities intended to be subsequently sold under a crowdfunding exemption. This new exemption allows an issuer to make an initial solicitation of interest in the offering.

Under this exemption, an offer to sell a security is exempt from registration if certain requirements are met, including all of the following: 1) the offer is made in a newspaper, by media broadcast, by Internet, or by certain other means for the sole purpose of soliciting an indication of interest from prospective purchasers in receiving a prospectus, private placement memorandum, or equivalent disclosure document for the security; 2) the issuer intends that sales of the security be made under the Internet crowdfunding exemption; 3) prior to the initial solicitation of interest, the offeror files with the division a completed solicitation of interest form, together with any other materials to be used to conduct solicitations of interest; 4) the material used in the solicitation of interest contains certain disclosures; 5) no sales of the security are made until 20 calendar days after the last solicitation of interest; and 6) during the solicitation of interest period, neither the issuer nor any person acting on its behalf accepts or solicits money or other commitments to purchase securities. Under certain circumstances, this exemption may apply even if all of these requirements are not met.