JOBS Act Update: Crowdfunding and Other Private Offerings Monday, May 23 1:15 p.m. 2:15 p.m. Panelists provide regulatory updates related to the JOBS Act. They discuss recent trends in Regulation D and Regulation A-plus private offerings, the recently approved crowdfunding and funding portal rules, and other compliance-related regulatory developments. Moderator: Joseph Savage Vice President and Counsel FINRA Regulatory Policy Panelists: Adam Arkel Senior Counsel FINRA Regulatory Practice and Policy Douglas Ellenoff Partner Ellenoff Grossman & Schole LLP Ryan Feit Chief Executive Officer and Co-Founder SeedInvest 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
JOBS Act Update: Crowdfunding and Other Private Offerings Panelist Bios: Moderator: Joseph P. Savage is a Vice President and Counsel in FINRA s Regulatory Policy Department. Mr. Savage specializes in a broad range of securities regulatory matters, including investment management, investment company, advertising and broker-dealer issues, and regularly appears at conferences regarding these issues. Prior to joining FINRA, he was an Associate Counsel with the Investment Company Institute and an attorney with the law firms of Morrison & Foerster LLP and Hunton & Williams. Mr. Savage also served as a judicial law clerk for United States District Judge John P. Vukasin of the Northern District of California. Mr. Savage holds a bachelor s degree from the University of Virginia, a master s degree in public policy from the University of California, Berkeley, and a J.D. from the University of California, Hastings College of the Law, where he served as Note Editor of the Hastings Law Journal. Panelists: Douglas S. Ellenoff, a member of Ellenoff Grossman & Schole LLP since its founding in 1992, is a corporate and securities attorney with a specialty in business transactions and corporate financings. Mr. Ellenoff has represented public companies in connection with their initial public offerings, secondary public offerings, regulatory compliance as well as general corporate governance matters. During his career, he has represented numerous broker-dealers, venture capital investor groups and many corporations involved in the capital formation process. In the last several years, he has been involved at various stages in numerous registered public offerings, including more than 100 financings and, with other members of his firm, over hundreds of private placements into public companies (see PIPEs and Venture Capital), representing either the issuers of those securities or the registered broker-dealers acting as placement agent. Along with other members of his Firm, Mr. Ellenoff has been involved at various stages with over 80 registered blind pool offerings (commonly referred to as "SPACs"; 30 of which have consummated their IPO's raising nearly $2.0 billion). In addition to our IPO experience with SPACs, he has been involved with more than 23 SPAC M&A assignments. The Firm represents nearly 60 public companies with respect to their ongoing 34 Act reporting responsibilities and general corporate matters. He also provides counsel with regard to their respective ongoing (SEC, AMEX and NASD) regulatory compliance. Mr. Ellenoff and the rest of the corporate department distinguish themselves from many other transactional lawyers on the basis of their ability to be part of the establishment of new securities programs, like PIPEs, SPACs, Registered Directs and Reverse Mergers, where the Firm's professionals have played leadership roles within each of those industries, assisting in the creation, formation and strategies relating to those financings, as well as working closely with the regulatory agencies; including the SEC and FINRA; and the listing exchanges - AMEX and NASDAQ. Mr. Ellenoff is routinely requested to be a panelist and presenter at investor conferences. Like the other innovative securities programs mentioned above, the Firm has taken a leadership in the emerging crowdfunding industry, which was signed into law by President Obama on April 5, 2012. In addition to regular meetings and interaction on behalf of the leading trade association which the Firm represents, (CFIRA, the Crowdfunding Intermediary Regulatory Advocates) with the SEC and FINRA in discussing the proposed rules which the SEC and FINRA must approve before crowdfunding becomes lawful in the US, the Firm has sponsored conferences, webinars and has been invited to speak at numerous events on the topic (see below). The Firm is already actively engaged with clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs). Supplementing his practice of law, Mr. Ellenoff has always maintained an active investing profile. Mr. Ellenoff founded Wardenclyffe, an investment management business, in 1995, which is no longer in business. Wardenclyffe was the general partner of: (ii) a long/short high yield bond fund (the Wardenclyffe High Yield Fund, L.P.), (ii) a micro-cap hedge fund (Wardenclyffe Micro-Cap Fund, L.P.), which specialized in emerging growth companies and (iii) a fully invested venture capital fund (Wardenclyffe Venture Partners I, L.P.). While attending law school, Mr. Ellenoff worked for Seligman, Harris & Co., Inc., a New York Stock Exchange broker-dealer as an intern analyst of special situations. Mr. Ellenoff's ancillary business and investing activities provide him with practical experience that enables him to more effectively represent and advise his law clients. Mr. Ellenoff is admitted to practice law in the State of New York and before the United States District Court for the Southern District of New York. Mr. Ellenoff received a Juris Doctor degree from Fordham Law School and a Bachelor of Arts degree in Political Science from Vassar College. 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Ryan M. Feit co-founded SeedInvest because he saw the need for a better way to connect entrepreneurs and investors. Prior to founding SeedInvest, Mr. Feit worked at Wellspring Capital Management and Lehman Brothers in New York City where he invested in, financed and managed dozens of private and public businesses. He was instrumental in the passage of the 2012 JOBS Act, which changed 80-year-old U.S. securities laws to make it possible for entrepreneurs to raise capital over the Internet. Since then, he has been highly involved in the implementation of the JOBS Act and frequently serves as a subject matter expert on startup investing and the JOBS Act for the Wall Street Journal, the Washington Post, CNBC, FoxBusiness, the Economist, the New York Times, Fortune Magazine and Inc. Magazine. Mr. Feit received an MBA in Entrepreneurial Management from The Wharton School of the University of Pennsylvania. Adam H. Arkel is Associate General Counsel at the Financial Industry Regulatory Authority (FINRA). In this role, he helps develop policies and rules governing FINRA member firms, including such areas as broker-dealer financial responsibility and risk oversight, regulation of derivatives, and crowdfunding. Prior to joining FINRA, Mr. Arkel was an Associate at a large law firm in Washington, DC, where he represented firms and individuals in connection with Securities and Exchange Commission investigations and enforcement actions. Mr. Arkel completed his JD at Duke University School of Law. He completed MA and PhD degrees in political science at the University of Chicago, where his research focused on the Greater China region. 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
FINRA Annual Conference May 23 25, 2016 Washington, DC JOBS Act Update: Crowdfunding and Other Private Offerings
Panelists Moderator Joseph P. Savage, Vice President and Counsel, FINRA Regulatory Policy Panelists Adam Arkel, Associate General Counsel, FINRA Regulatory Practice and Policy Douglas S. Ellenoff, Partner, Ellenoff Grossman & Schole LLP Ryan M. Feit, Chief Executive Officer and Co-Founder, SeedInvest 1
To Access Polling Click on the schedule icon on the home screen Choose the JOBS Act Update: Crowdfunding and Other Private Offerings session In the lower right there is an icon: iphone - Bubble with a bar graph Android - Thumbs up Click on that to see polling questions and responses. 2
SEC Crowdfunding Rules: Registration Exemption Limits on Capital Raised Investment Limits Transaction Conducted through an Intermediary Exclusion of Certain Issuers from Eligibility under Section 4(a)(6) 3
SEC Crowdfunding Rules: Issuer Requirements Disclosure Requirements Ongoing Reporting Requirements Form C and Filing Requirements Prohibition on Advertising Terms of Offering Compensation Requirements Other Issuer Requirements 4
SEC Crowdfunding Rules: Intermediaries Definitions General Requirements Measures to Reduce Risk of Fraud Account Opening Requirements with Respect to Transactions Completion of Offerings and Cancellations Payments to Third Parties 5
SEC Crowdfunding Rules: Funding Portals Registration Requirements Exemption from Broker-Dealer Registration Safe Harbor for Certain Activities Compliance Funding Portal Records 6
Financial Crimes Enforcement Network (FinCEN) Proposed Regulations Comments Due by June 3 7
FINRA Funding Portal Rules FINRA Regulatory Notice 16-06, Jumpstart Our Business Startups (JOBS) Act, SEC Approval of FINRA Funding Portal Rules and Related Forms General Standards (Rule 100) Application (Rule 110) Conduct (Rule 200) Compliance (Rule 300) Investigations and Sanctions (Rule 800) 8
FINRA Funding Portal Rules (cont d) Code of Procedure (Rule 900) Arbitration and Mediation (Rule 1200) Filing of Forms Form FP-NMA Form FP-CMA Funding Portal Rule 300(c) Form Form FP-Statement of Revenue 9
FINRA Rules for Broker-Dealer Intermediaries FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) FINRA Regulatory Notice 16-07, Jumpstart Our Business Startups (JOBS) Act, SEC Approval of FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) 10
Crowdfunding Industry Trends Moving from Rewards Based Crowdfunding Registration of Funding Portals Equity vs. Debt Offerings 11
Crowdfunding Industry Trends (Cont d) What Can We Learn from Overseas Crowdfunding? Types of Companies that are Fits for Crowdfunding Largest Potential Risks for Industry Timing for Issues to Utilize Regulation CF at Scale Potential Future Improvements to the Rules 12
Regulation D Offerings Rule 506(b) and 506(c) Offerings Differences in Requirements Types of Issuers that have Utilized Rule 506(c) Obstacles to Adoption of Rule 506(c) Hidden Dangers of Rules 506(b) and 506(c) Filings under FINRA Rules 5122 and 5123 Industry Trends and Statistics 13
Regulation A+ Offerings Amendments to Regulation A Eligible Issuers and Securities Offering Limitations and Secondary Sales Investment Limitations Integration Treatment under Section 12(g) Offering Statement 14
Regulation A+ Offerings (cont d) Amendments to Regulation A (cont d) Solicitation of Interest (Testing the Waters) Ongoing Reporting Requirements Insignificant Deviations Bad Actor Disqualification Relationship with State Securities Laws Filings with FINRA Corporate Financing Department 15
Regulation A+ Offerings (cont d) Industry Trends Types of Companies that are Utilizing Regulation A+ Potential for Regulation A+ over the Next 3-5 Years Evolving Issues and Concerns to Keep an Eye On 16
Questions & Answers 17
JOBS Act Update: Crowdfunding and Other Private Offerings Monday, May 23 1:15 p.m. 2:15 p.m. Resources FINRA Regulatory Notices FINRA Regulatory Notice 16-08, Private Placements and Public Offerings Subject to a Contingency (February 2016) www.finra.org/sites/default/files/regulatory-notice-16-08.pdf FINRA Regulatory Notice 16-07, SEC Approval of FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) (January 2016) www.finra.org/sites/default/files/regulatory-notice-16-07.pdf FINRA Regulatory Notice 16-06, SEC Approval of FINRA Funding Portal Rules and Related Forms (January 2016) www.finra.org/sites/default/files/regulatory-notice-16-06.pdf FINRA Regulatory Notice 15-32, FINRA Filing Requirements and Review of Regulation A Offerings (September 2015) www.finra.org/sites/default/files/notice_doc_file_ref/regulatory-notice-15-32.pdf FINRA Regulatory Notice 12-40, SEC Approves New FINRA Rule 5123 Regarding Private Placements of Securities (September 2012) www.finra.org/sites/default/files/noticedocument/p163707.pdf FINRA Regulatory Notice 10-22, Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings (April 2010) www.finra.org/sites/default/files/noticedocument/p121304.pdf SEC Resources SEC Release No. 33-9974 (October 30, 2015), 80 FR 71388 (November 16, 2015) (Crowdfunding) www.gpo.gov/fdsys/pkg/fr-2015-11-16/pdf/2015-28220.pdf 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
SEC Release No. 33-9741 (March 25, 2015), 80 FR 21806 (April 20, 2015) (Amendments for Small and Additional Issues Exemptions Under the Securities Act (Regulation A)) www.gpo.gov/fdsys/pkg/fr-2015-04-20/pdf/2015-07305.pdf Rule 506 of SEC Regulation D www.sec.gov/answers/rule506.htm Other Resources FINRA Regulation A+ Filing Guide www.finra.org/industry/public-offering-system/regulation-a-plus-filings Department of the Treasury, Financial Crimes Enforcement Network: Proposed Amendments to the Definition of Broker or Dealer in Securities, 81 FR 19086 (April 4, 2016) www.fincen.gov/statutes_regs/frn/pdf/2016-07345.pdf 2016 Financial Industry Regulatory Authority, Inc. All rights reserved. 2