This week the SEC released three new Compliance and Disclosure Interpretations (C&DIs) relating to Rule 147, which applies to securities that exempt from registration pursuant to Section 3(a)(11) of the Securities Act because they were offered and sold only to residents of a single state, and were issued by a company transacting business in that state. If a particular state were to adopt intrastate rules that allowed crowdfunded offerings, it could be possible for an issuer to engage in a crowdfunded offering that was exempt from federal registration as an intrastate offering pursuant to Section 3(a)(11) and permissible pursuant to the applicable state laws and regulations where the offering was conducted. The new C&DIs provide some clarification regarding the interaction between the requirement that a Section 3(a)(11) security be offered and sold only to residents within a single state and the character of a crowdfunded offering as a widely advertised event:
- Section 3(a)(11) does not prohibit general advertising and solicitation, but any advertising and solicitation must be conducted in a manner consistent with the requirement that the security be offered and sold only to persons within a single state.
- Similarly, the use of a crowdfunding website or portal does not by itself invalidate reliance on Rule 147, as long as the portal itself implements “adequate measures” to ensure that offers and sales are made only to residents of the target state. The SEC provides that adequate measures would include, at a minimum, disclaimers relating to the availability of the offering to only residents of the target state and limiting access to information to persons who confirm through a representation or by providing address information that they are residents of the target state.
- An issuer will likely be unable to use its existing social media presence or website to advertise an intra-state crowdfunded offering. Although the SEC will evaluate each instance by all of its facts and circumstances, as a general matter issuer websites and social media presence are used to provide indiscriminate communications to a broad audience, which would be inconsistent with the requirements of Rule 147 and Section 3(a)(11).