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Issuers of Securities and Potential Conflicts with Federal Antifraud Provisions

JL Law

General solicitation in the realm of offering securities under Reg A+ Tier II and Rule 506(c) is a growing trend in the United States. Title III of the JOBS Act also provides a more limited form of general solicitation.  An array of different marketing channels may be used to attract investors, including various types of social media, including postings and videos either on corporate websites or funding platforms.

There are anti-fraud regulations in place (both federal and state) that have been in place prior to the birth of general solicitation. Both the funding platforms and the issuers of securities must comply with these rules. Failure to do so can get both entities into regulatory trouble.

The selling, or offering, of securities are highly regulated.  Multiple laws define what constitutes a sale or offer.  The term as defined by the 1933 Securities Act and borrowed in great measure by the Uniform Securities Act and other bodies of law, states that an offer is to ‘include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in security, for value.”.

The Integrity of Security Offerings

Statements that come from issuers and those mentioned from platforms where a securities offering is posted must not contain misrepresentations, be misleading or omit material facts regarding the securities offered, the offering itself or the company itself.  In a nutshell, one should disclose all information that a reasonable person would want to consider before making an investment decision.  As a pointer, if you have to think about whether or not you should disclose something, you probably should.

SEC and State Enforcement of Investor Fraud

Both the states and the SEC itself have powers to enforce compliance with all of these regulatory statutes. The state handles the local state jurisdiction matters for securities offered with that state.

Securities which are offered on a website must not contain misinformation. General solicitation to the public poses enhanced risk because many times entrepreneurial startups are the objects of the investment. Having reliable information about the company, including all other aspects of the investment opportunity is essential to minimizing the risk.

Antifraud Concerns

Some specific items that can raise concern include the following:

        Exaggerated investment return and projected dividend earnings. Unsubstantiated claims or prejudicial opinions about future performance may be suspect and invite investigation.

        Hidden or missing risk disclosures on websites or those that are difficult to find or read may also raise a red flag to regulators. Excessively positive descriptions or reviews also indicate possible issues. Balance must be presented – balance that may include positive statements about the opportunity, but also the mention of the risks involved.

        Excessive marketing hype on the website or in brochures – the type that is actually misleading and deceptive – these kinds of statements also invite red flags.

With all of the above-mentioned cautions and more, the advice obtained from a security attorney by the issuer and funding platforms to ensure proper compliance with the law is advisable.  VerifyInvestor.com can help refer you to competent securities attorneys if you don’t already have one.

Verification of accredited investor status is required in all Regulation D – Rule 506(c) capital raises, the type of crowdfunding that raises the most capital. VerifyInvestor.com provides confidential and secure verification services to help issuers protect themselves.  You take care of the anti-fraud disclosures, we’ll take care of the accredited investor verifications.