From its office in Clayton, Missouri, Danna McKitrick, P.C., delivers legal representation to new and growing businesses, financial institutions, non-profit and government-related entities, business owners, individuals, and families throughout the greater St. Louis region and the Midwest.
Danna McKitrick attorneys practice across many areas of law, both industry- and service-oriented.
Over the last two years, research has found between 13-16% of Americans have at one time owned cryptocurrency. This falls squarely into the Early Adopters Category and is approaching Early Majority. While many are still skeptical of cryptocurrency, the underlying technology is likely here to stay due to the multitude of uses beyond cryptocurrency.
The history of crypto and blockchain began when a white paper was released in 2008 by the pseudonym Satoshi Nakamoto which laid out the concept of bitcoin and the underlying blockchain which made it functional. While the code and formulas that run blockchain are far too complex for this article, the concept boils down to this: Blockchain is a digital ledger kept by numerous decentralized computers which solve formulas to validate the authenticity of transactions and add them to “blocks” on the chain. This ledger is secure due to the large number of independent sources validating each transaction and maintaining the chain which may be reviewed at any time by anyone. Continue reading »
“We’re the SEC, and we’re here to make it easier for small businesses to raise capital. . . . Really, . . . we are . . . really . . . trust us.”
Unbelievable?? Yes, except for the past nine years. But its largesse arrived grudgingly under pressure from Congress in the JOBS Act of 2012, which in turn was due to pressure from the business and entrepreneurial community.
Since the adoption of the Securities Act in 1933, sales of investments by companies and entrepreneurs to investors to raise capital have required either registration with the SEC and states (a long expensive process that is not available to most new and/or small businesses), OR qualification for an “exemption” from the requirement. The exemptions have historically been difficult and expensive to obtain and are also unavailable to many businesses.
But in the JOBS Act of 2012, Congress adopted 1) two new exemptions: Regulation Crowd Funding and an improved Regulation A (called “Regulation A+”); and, importantly, 2) a requirement for the SEC to modify many of the existing exemptions to significantly improve their availability. The SEC has since structured the two new exemptions and on November 2, 2020 amended a number of the existing exemptions. The November 2 amendments became effective March 15, 2021. Some of the amendments are as follows: Continue reading »
The entrepreneurial press, indeed, even the popular press, is abuzz about regulation crowdfunding (i.e., investment crowdfunding), which became legal on May 16, 2016. And according to some advertisements (primarily by portals, the businesses which will provide the platforms for such crowdfunding), the fund-raising company does not need an attorney, although it would be “nice.” Rather, they say, or imply, small and large businesses with their portals can simply get on the internet to quickly fund their ideas and better the economy at the same time!
Do not believe either the buzz or the advertisements.
Regulation CF is Only a Small (Albeit Very Important) Part of the Applicable Law
Regulation crowdfunding (17 CFR Parts 200, et seq.)(“Reg. CF”) though it is a sea change from (some of) the rules governing entrepreneurial finance, it is not for everyone. Indeed, for most entrepreneurs it should be considered as a last resort only. (See, for example, “Regulation Crowdfunding; Is it Right for You?”, St. Louis Small Business Monthly, June 2016, p. 29.) Secondly, Reg. CF adds to the rules and required steps for legally raising capital , and thus creates even more of a need for the assistance of a lawyer.
That is, the only (albeit very important) change in the law is that now certain “general solicitation” is allowed to promote certain types offerings of securities. But not all general solicitation is allowed. (For example, much information which could be promulgated other than on the platform of a portal such as by newspaper or television is still illegal.)
Virtually all other regulations, statutes, laws – and judicial lore – applicable to raising capital prior to Reg. CF remain applicable and will be applied by securities regulators – and by attorneys for investors who lose money in their crowdfunded investments. The securities regulators, which have authority to prosecute suspicious offerings, have been opposed to and wary of investment crowdfunding since it was required by the JOBS Act in 2012, including Missouri (see, for example, “Kander Issues Investor Alert on Crowdfunding.”)
With the exception of allowing (limited) general solicitation, all the law (and the lore of the regulators and courts which developed since the Securities Act of 1933) still applies to all offerings, including crowdfunded offerings. So do the complicated rules and methods. For example: Continue reading »
In the JOBS Act adopted in April 2012, Congress required the Securities and Exchange Commission (“SEC”) to adopt rules legalizing (i.e., exempting from the requirement to register with the SEC) the offer and sale of securities by small business issuers (which cannot afford registered public offerings) using mass media, to-wit: the Internet, social media, etc. Historically, both state and federal exemptions required “privateness” and forbade “general solicitation.”
On October 30, 2015, the SEC, in a 686 page release, finally adopted rules (see pages 547-686) to allow investment crowdfunding (the use of mass media to make offers and sales to non-accredited investors, i.e., persons with less than $1 million net worth and incomes under $200,000 annually). The rules will become effective in April 2016.
Supporters argue that these rules simply bring the offering and sales of securities into the modern age of mass media and allow persons of limited means to participate in the great boom of entrepreneurship. Critics, on the other hand, point out that those are the very persons who are the least investment sophisticated and the most vulnerable to financial fraud.
What Was Available Before Investment Crowdfunding?
To much ballyhoo, on October 30, 2015, the Securities and Exchange Commission (“SEC”) finally adopted rules to allow investment crowdfunding (which the SEC calls “Regulation Crowdfunding”). That is, it allows the use of mass media (Internet, etc.) (called “general solicitation”) to make offers and sales to non-accredited investors. Those are persons with less than $1 million net worth and annual incomes under $200,000. (Under present rules, general solicitation may be used only to solicit purchases from “accredited” investors.) The new rules will not become effective before April 2016.
“Regulation Crowdfunding”:A Method for True Investment Crowdfunding
Conceptually, allowance of general solicitation to solicit non-accredited investors is a sea change, in direct conflict with the basic investor protection philosophy of the SEC and state regulators since adoption of the Securities Act of 1933. The actual benefit of the new rules, however, is in some doubt. Continue reading »
Not quite ten months late, the Securities and Exchange Commission (SEC) on October 23, 2013 proposed rules to allow entrepreneurs and other small businesses to advertise investments in their companies on the Internet and in other general venues, and to allow persons other than wealthy investors to purchase those investments. Congress, in the JOBS Act signed by President Obama on April 5, 2013, had told the SEC to propose such rules by December 31, 2012. (In fairness, the SEC was faced with great pressures from numerous quarters, including the legislators themselves, concerning the content of the rules, which made that deadline impossible to meet.)
This type of investing, called “investment crowdfunding,” was illegal, and will remain illegal until the process of review, amendment and adoption of final rules is complete. The SEC has asked the public for comment on the proposed rules within 90 days. At least a few months of further processing after that 90 day period will be required before the rules are final. Continue reading »
As with any new technology, the innovation adoption curve describes the categories of groups involved in the technology at different times. 
