Tag Archives: JOBS Act

Stubbs Alderton & Markiles’ Joint Venture FlashFunders Launches Industry Standard for Online Equity Funding

Flash Funders

No-Fee Platform Connects Accredited Investors to
Innovative Startups Pursuant to the JOBS Act

SANTA MONICA, Calif.: Oct. 16, 2014 – FlashFunders today announced the launch of its no-fee, online equity funding platform at www.flashfunders.com.  FlashFunders (member FINRA/SIPC) was started by Europlay Capital Advisors, law firm Stubbs Alderton & Markiles, and co-founders Vincent Bradley and Brian Park, and was formed to help startups raise capital efficiently while also opening up access to startup investing for accredited investors.

FlashFunders’ platform helps entrepreneurs navigate complex SEC regulations and offsets costly legal fees, while giving accredited investors unprecedented access to startup investment opportunities. FlashFunders provides a turnkey solution for raising capital and a marketplace where entrepreneurs can connect directly with accredited investors across the globe.

FlashFunders ensures all investors are accredited and that all offerings are SEC-compliant and executed using FDIC-insured escrows — which are created and paid for by FlashFunders.

“We worked with FINRA over the past year to expand the scope of our broker-dealer license, allowing FlashFunders to operate an online equity funding platform in a regulated environment,” said Vincent Bradley, the co-founder of FlashFunders. “We felt it was critical to ensure our platform was compliant for both startups and investors. Online equity funding is in its infancy and seeing tremendous growth; by engaging with FINRA, we’re leading the way for how it should be done — creating an industry standard.”

“97% of the 8.5 million accredited investors in the United States currently don’t partake in startup investing,” said Mark Dyne, the chairman and founder of Europlay, a seed and early-stage investor in technology companies, as well as former Skype seed investor and board member and founder and CEO of Sega Ozisoft, Virgin Interactive Entertainment, and many others. “This is largely because they don’t have access to early stage companies. Leveraging technology and decades of combined experience in finance, venture investing, securities law and startup operations, FlashFunders provides entrepreneurs and investors a secure, SEC-compliant user experience, with e-Signature technology and document management capabilities backed by a team of FINRA-registered representatives to help ensure successful offerings on the platform.”

“FlashFunders is designed to fundamentally alter the capital-raising process,” said Brian Park, co-founder of FlashFunders. “We provide startups with a compliant, efficient and no-fee online equity funding platform to develop their business plans, publicly market their offerings and collect funding from accredited investors —saving startups thousands of dollars in legal fees. At the same time, investors on FlashFunders can purchase shares directly in startups with no transaction fees or carried interest charges.”

FlashFunders creates a safe and intuitive process that allows investors to view startup offerings and execute investments legally and properly in minutes using Flash Seed Preferred documents and e-Signature technology.

FlashFunders has created “Flash Seed Preferred,” a set of safe, balanced and transparent investment documents that have been customized to facilitate fundraising on the platform, further streamlining a process that would otherwise take months of road shows, multiple middlemen and tens of thousands of dollars in legal fees to execute.

“Unlike other equity funding portals, FlashFunders does not curate or try to pick winners, and investments are not made through LLCs or Special Purpose Vehicles,” said Scott Alderton, Managing Partner at Stubbs Alderton & Markiles, LLP. “FlashFunders provides a seamless end-to-end solution for startups raising capital with virtually no external cost, fees or investor carry. FlashFunders receives an ongoing right to invest a limited amount under the same terms as all other investors if a startup is successful in getting funded on the platform.” Stubbs Alderton & Markiles, LLP is southern California’s leading business law firm, with deep experience in providing legal services to companies including LinkedIn, Beats by Dre and Skype, among many others.

The announcement today is the first phase of FlashFunders’ rollout. Additional enhancements to the user experience will be added over time along with new tools and technologies to increase functionality and scale. Offerings from startups will be incrementally uploaded by the site’s concierge service, which assigns a live team to guide entrepreneurs through the process.

“We are educating a new generation of investors and building a more efficient roadshow for startups,” said Vincent Bradley.

About FlashFunders

A registered broker-dealer, member FINRA/SIPC, FlashFunders provides a no-fee online equity funding platform for entrepreneurs to publicly market their offerings, collect funding from accredited investors and gain access to SEC-compliant legal documents and escrow accounts to create their offerings.

For more information, visit: http://www.flashfunders.com

Media Contact:
Amy Morris                                                 Susan Guerra
FlashFunders                                              Thatcher+Co.
amyshapiromorris@gmail.com               sguerra@thatcherandco.com
917.887.2725                                              973.650.6555


Stubbs Alderton & Markiles, LLP Client Alert

VC-Stock-ImageSEC Lifts Ban On General Solicitation, Allowing Startups
To Advertise That They Are Fundraising

The SEC has adopted rules implementing section 201(a) of the JOBS Act, which lifts the ban on general solicitation and advertising in private placement transactions.  This monumental change in the private placement regulations permits startups, venture capitalists, and hedge funds to openly advertise that they’re raising money in private offerings. Investment is still limited to accredited investors, and fundraisers must take reasonable steps to verify that investors are in fact accredited. In addition, issuers will have to file a Form D with the SEC at least 15 days before they begin general solicitation, and amend that Form D to state that they’re done soliciting within 30 days of finishing.  The rules will be effective in approximately 60 days.

Click here for a link to the SEC announcement and copies of the final rules: http://www.sec.gov/news/press/2013/2013-124.htm.

SEC is still to rule on the most significant provisions of the JOBS Act, which would allow true equity crowdfunding. We will post further details as they become available.

For more information about the JOBS Act and crowdfunding, please contact Sean Greaney, Partner at Stubbs Alderton & Markiles, LLP  at (818) 444-4504 or sgreaney@stubbsalderton.com


SEC Releases Proposed Rules Eliminating General Solicitation and Advertising Prohibitions in Rule 506 and 144A Offerings

(August 29, 2012) The SEC has published proposed amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 in order to implement the requirements of the JOBS Act.  The proposed amendments would eliminate the general solicitation and general advertising prohibitions in those Rules for offerings made solely to accredited investors.

The proposed amendments to Rule 506 would eliminate the prohibition against general solicitation for offers and sales of securities under Rule 506 in which all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify the purchaser’s accredited investor status.  Rather than specifying particular steps required to be taken by the issuer to verify accredited investor status, the determination as to whether steps are reasonable under the proposed rules would be determined on a case-by-case basis, based on the particular facts and circumstances.  Factors to be considered include (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be, (2) the amount and type of information that the issuer has about the purchaser; and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

With respect to Rule 144A offerings, the SEC has proposed an amendment to Rule 144A(d)(1) that would provide that securities may be offered other than to qualified institutional buyers (QIBs), provided that they are sold only to those persons that the seller and their agents reasonably believed to be QIBs.

The SEC has requested comments on the proposed rule amendments and related topics from the public. Comments on the proposals should be received on or before September 28, 2012.  Comments may be submitted by internet, email or paper and will be available for viewing and printing in the SEC’s Public Reference Room.

The text of the SEC’s proposal and request for comment is available at http://www.sec.gov/rules/proposed/2012/33-9354.pdf.

For more information regarding this Alert, other provisions of the JOBS Act including crowdfunding provisions, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at jmcilvery@stubbsalderton.com.


JOBS Act Update: SEC Delays Fund Marketing Vote

The SEC has missed the 90-day deadline to implement the rules as required by the JOBS Act and delayed for a week its consideration of new rules to lift the ban on general advertising for private securities offerings.  The JOBS Act reduces a variety of securities regulations to help smaller companies more easily raise capital.  To view the full Reuters article, click here.

For more information regarding our Public Securities Practice, please contact John McIlvery at (818) 444-4502 or jmcilvery@stubbsalderton.com


Crowdfunding – Wait for It. . .

by:  Susan Wong

The SEC has issued a public reminder that while the JOBS Act has been signed into law, the crowdfunding exemption provided in Title III of the Act is not available for use until the required regulations have been adopted by the SEC.  Pursuant to the JOBS Act, the SEC was directed to adopt these measures by December 31, 2012, and the SEC has begun to collect public comments toward this end.  Initial proposed regulations have not yet been made available for public review and comment.

For more information regarding this Alert, other provisions of the JOBS Act or crowdfunding initiatives, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at 818.444.4502 or jmcilvery@stubbsalderton.com.


SEC’s Division of Trading and Markets Issues FAQs on Crowdfunding Intermediaries

By:  Susan Wong

(May 16) The SEC’s Division of Trading and Markets has published Frequently Asked Questions guidance on its website regarding the implementation of the crowdfunding intermediary provisions of Title III of the JOBS Act. The crowdfunding exemption will require issuers to use intermediaries – either a broker or a “funding portal” registered with the SEC – to complete crowdfunded offerings. Funding portals will also be required to become members of a national securities association registered under Section 15A of the Exchange Act. Currently, FINRA is the only such association in existence.  Intermediaries will be subject to the duties and prohibitions prescribed by the JOBS Act, the rules and regulations the SEC will adopt thereunder, as well as the rules and regulations of their applicable association.

Please note that the FAQs (i) are subject to update and revision at any time, (ii) are not rules, regulations or statements of the SEC, and (iii) have been neither approved nor disapproved by the SEC.  The crowdfunding intermediary FAQs can be found at: http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm

Currently, the FAQs provide as follows:

Responses to Frequently Asked Questions

Question 1.

I would like to operate a crowdfunding intermediary. Am I required to register with the SEC before doing so?


Yes. You must register with the SEC either as a broker or as a funding portal.

Please keep in mind that the SEC still has to write rules to implement the crowdfunding provisions of the JOBS Act. Until the SEC has completed this rulemaking, you cannot act as a crowdfunding intermediary, even if you are already a registered broker. The Division of Corporation Finance also has reminded issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws until the SEC’s rulemaking is complete.

Question 2.

How do I register with the SEC as a funding portal?


The SEC must adopt rules governing funding portals before permitting anyone to register with the SEC as a funding portal. These rules will address the form and process needed to register with the SEC as a funding portal.

Funding portals also must become members of a national securities association that is registered under Section 15A of the Exchange Act. Today, FINRA is the only national securities association in existence that is registered under Section 15A of the Exchange Act.

Question 3.

I would like to operate as a funding portal. Do I need to register with the Financial Industry Regulatory Authority (FINRA)?


All funding portals must become members of a national securities association that is registered under Section 15A of the Exchange Act, in addition to registering with the SEC. Today, FINRA is the only national securities association in existence that is registered under Section 15A of the Exchange Act.

Question 4.

Are there are any limitations on what a funding portal can do?


Among other things, the JOBS Act imposes several restrictions on the activities of a registered funding portal. A funding portal is not permitted to:

  • provide investment advice or make recommendations;
  • solicit purchases, sales, or offers to buy the securities offered or displayed on its website or portal;
  • compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal;
  • hold, manage, possess, or otherwise handle investor funds or securities; or
  • engage in any other activities the SEC determines to prohibit in its crowdfunding rulemaking.

In addition, each funding portal and each crowdfunding broker is prohibited from:

  • compensating promoters, finders, or lead generators for providing the intermediary with the personal identifying information of any potential investor; or
  • allowing its directors, officers, or partners (or any person occupying a similar status or performing a similar function) to have a financial interest in any issuer using the services of the intermediary.

Question 5.

I would like to operate a crowdfunding intermediary. In addition to registering with the SEC and a national securities association, what should I know?


There are many considerations in determining whether to operate a crowdfunding intermediary. At a minimum, you should understand the legal obligations that the JOBS Act assigned to crowdfunding intermediaries. For example, crowdfunding brokers and funding portals have significant duties under the JOBS Act to provide information to investors, reduce the risk of fraud and, where required under the Act, ensure that investors and issuers satisfy the requirements outlined in Title III of the JOBS Act.

The JOBS Act requires these intermediaries to, among other things:

  • provide disclosures that the SEC determines appropriate by rule, including regarding the risks of the transaction and investor education materials
  • ensure that each investor: (1) reviews investor education materials; (2) positively affirms that the investor understands that the investor is risking the loss of the entire investment, and that the investor could bear such a loss; and (3) answers questions that demonstrate that the investor understands the level of risk generally applicable to investments in startups, emerging businesses, and small issuers and the risk of illiquidity;
  • take steps to protect the privacy of information collected from investors;
  • take such measures to reduce the risk of fraud with respect to such transactions, as established by the SEC, by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;
  • make available to investors and the SEC, at least 21 days before any sale, any disclosures provided by the issuer;
  • ensure that all offering proceeds are only provided to the issuer when the aggregate capital raised from all investors is equal to or greater than a target offering amount, and allow all investors to cancel their commitments to invest;
  • make efforts to ensure that no investor in a 12-month period has purchased crowdfunded securities that, in the aggregate, from all issuers, exceed the investment limits set forth in section Title III of the JOBS Act; and
  • any other requirements that the SEC determines are appropriate.

In addition, under the JOBS Act, an intermediary should be aware of the prohibited activities listed in response to Question 4.

For more information regarding this Alert, other provisions of the JOBS Act or crowdfunding initiatives, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at (818) 444-4502.


Stubbs Alderton & Markiles, LLP Client Alert – Crowdfunding

It’s official.  Crowdfunding is law.

What is crowdfunding?  Crowdfunding has been used to describe a number of methods that enterprises and collections of people may use to fund or support various initiatives. For startup companies looking to raise debt or equity from the sale of securities, crowdfunding refers to raising such funds, primarily over the Internet, in smaller amounts from a larger pool of investors though intermediaries.

On March 27, 2012, the House accepted the Senate version of the Jumpstart Our Business Startups Act (the “JOBS Act”) which provides for amendments to our securities laws to allow for crowdfunding activities. President Obama signed the JOBS Act into law on April 5, 2012. In order for crowdfunding to get underway, the SEC and other regulatory agencies will need to adopt certain rules and regulations implementing the new law.  The law provides that these measures should be adopted within 270 days of signing by the President, and the SEC has already begun to collect comments from the public for this purpose.

This is exciting news for companies that are attempting to raise capital.  Title IV of the JOBS Act will allow business enterprises to raise capital through crowdfunding initiatives.  These companies can raise capital from individual investors by offering stock for sale through their third-party intermediaries.   The JOBS Act adds a new Section 4(6) to the 33 Act, which provides a new exemption for the small business from registration for the offer and sale of securities in connection with crowdfunding transactions.  The exemption would be available for offerings not greater than $1M in the aggregate during any twelve month period, subject to further limitation on a per investor basis.  The amount sold to any particular investor during a twelve month period by all crowdfunding issuers may not exceed:

(A) for investors with less than $100,000 in net worth or annual income, the greater of $2,000 or 5% of their annual income or net worth, and
(B) for investors with greater than $100,000 in annual income or net worth, up to 10% of the investor’s annual income or net worth, not to exceed $100,000.

Securities issued pursuant to the new 4(6) exemption will be considered (1) “covered securities” which means that they will be exempt from state Blue-Sky registration and (2) “restricted securities,” subject to Rule 144 restrictions for public resales.  The one-year restriction on resale described above would apply to private as well as public resales.  Another benefit to small businesses – the crowdfunded investors will not count against the shareholder cap for triggering public reporting requirements with the SEC.

As described above, sales of securities under the new crowdfunding exemption must occur through third-party intermediaries.  Who can serve as an intermediary?  An intermediary must be a registered broker or funding portal (as defined in new Section 3(a)(80) of the 34 Act).  It is not specified whether the intermediaries must be an electronic system or manual brokerage operation.

Regulations still need to be adopted regarding these intermediaries.  Funding portals will be required to register with the SEC and any applicable self-regulatory organization, but are conditionally exempt from registration as a broker dealer.  It is expected that FINRA will become the self-regulatory organization.

What will it cost? Restrictions regarding fees and how much an intermediary may charge an issuer or investor in connection with a transaction are not specified.  However, the JOBS Act does provide that the intermediary and its directors, officers or partners cannot have a financial interest in an issuer using its services, which would presumably preclude taking stock for providing the service.  Intermediaries also may not compensate promoters, finders, or lead generators for providing them with the personal identifying information of any potential investor.  Other restrictions regarding disclosures, risk, cancellation and protection of privacy have been set in place for intermediaries and issuers to protect investors and reduce the risk of fraud with respect to such transactions.  It is expected that these restrictions will be further clarified as the SEC adopts the needed regulations.

How does the JOBS Act compare against Rule 506 under Regulation D?  Separate from the crowdfunding measures, the JOBS Act also requires that the SEC amend Rule 506 under Regulation D to permit allow general solicitation in 506 offerings in which sales are made only to accredited investors. It also provides for an exception from broker-dealer registration requirements for platforms or mechanisms that aim to facilitate offerings under Rule 506 of Regulation D. More specifically,  a person (including a platform or other service provider and its associated persons) would not be obligated to register as a broker-dealer for engaging in any of the following:

(A)  permitting offers, sales, purchases, negotiations, general solicitations or similar activities in connection with a 506 offering,
(B)  co-investing in the 506 offering, or
(C)  providing ancillary services, such as due diligence and documentation, in connection with the 506 offering.

To be eligible for this exemption, however, the person and its associated persons:

(A) may not receive any compensation in connection with a purchase or sale in the 506 offering,
(B)  may not have possession or control of customer funds or securities in connection with a purchase or sale in a 506 offering, and
(C)  may not be subject to statutory disqualification, as defined in the 34 Act.

Rule 506 may therefore serve as an alternative type of “crowdfunding” exemption for accredited investors without any of the limitations in related to the new Section 4(6) exemption for crowdfunding.

This is an exciting time for emerging growth and other small companies who now have additional innovative opportunities to raise capital.  We will continue to monitor this development provide updates as they become available.  For more information regarding this Alert, contact John McIlvery, Group Chair of SAM’s Public Securities practice area.


A Look at the Proposed Amendments to the Crowdfunding Bill

Wednesday, the Senate cloture vote on H.R. 3606, better known as the JOBS Act, passed 76-22–the package will allow companies to offer securities to non-accredited investors via crowdfunding platforms. The JOBS Act passed the House by a 390-23 vote on March 8 and in a rare showing of bipartisan agreement on the economy during an election year. The Obama administration has expressed support for the JOBS Act, which the President intends to sign into law when the legislation reaches his desk.

For more information on this legislation, click here.