1. This commonly used term includes reward- and donation-based online platforms. By now, most people are familiar with this type of crowdfunding, for example: Kickstarter. What makes this type of direct-to-consumer investment “dummy proof” from a securities law perspective is that the investor isn’t being offered a financial return in exchange for participating in the transaction. Even if incentive gifts are offered to entice investors, these deals are not deemed the sale of securities for either federal or state regulation purposes. Kickstarter merely serves as a platform allowing creators and financial backers to reach an agreement.
2. There are also online funding platforms where sales of securities are made to accredited investors. The Securities Exchange Commission (SEC) has issued no-action letters to protect website solicitation of these securities from being deemed public offerings. These deals are made in reliance on typical exemptions under U.S. federal securities laws. However, they remain subject to state “blue sky” securities laws.
3. In addition, there is peer-to-peer debt lending, which often involves the securitization of loans being sold on the secondary market. These deals are as complex from a structural and legal perspective as they sound. They involve SEC registered securities, they are subject to banking, as well as securities law regulations, and are far more complicated than the scope of this blog.
4. Online platforms wishing to engage in the sale of securities to the general public must comply with an extensive regulatory regime, which is currently under consideration by the SEC. In the digital age, global consumer business transactions are conducted over the Internet all day, every day. So, businesses seeking to use this fundraising method must understand and ensure compliance with the securities laws of the United States, as well as all applicable state securities and international laws.
Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email aimee@aimeebdavis.com.
Aimee B. Davis Law P.C.
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