BILL ANALYSIS Ó
AB 2178
Page 1
Date of Hearing: April 4, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 2178
(Chiu) - As Introduced February 18, 2016
SUBJECT: Securities transactions: qualifications by permit:
liability
SUMMARY: Creates a new qualification by permit under
California's Corporate Securities Law of 1968 to allow
equity-crowdfunding. Specifically, this bill:
1)Provides that any offer or sale of any security that meets the
following criteria may be qualified by permit:
a) An applicant may file an application for a
"crowdfunding" permit if the applicant meets the following
conditions:
i) The applicant is a California corporation or a
foreign corporation, as specified; the applicant is not
issuing fractional undivided interests in oil and gas
rights, or a similar interest in other mineral rights;
the applicant is not an investment company subject to the
Investment Company Act of 1940; and the applicant is not
subject to the reporting requirements of as specified in
the Securities Exchange Act of 1934.
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ii) Provides that the total offering of securities by
the applicant to be sold in a 12-month period, within or
outside this state, is limited to $1,000,000, less the
aggregate offering price for all securities sold within
the 12 months before the start, and during the offering
of the securities.
iii) Offers and sales cannot be integrated with prior
offers or sales of securities or subsequent offers or
sales of securities, as specified.
iv) Prohibits the securities sold during a 12-month
period to any investor from exceeding the lesser of
$5,000 or 10% of the net worth of that natural person or
such amount as the Commissioner of the Department of
Business Oversight (DBO) may provide by rule or order.
(1) States "net worth" shall be determined
exclusive of home, home furnishings, and automobiles.
Other assets included in the computation of net worth
may be valued at the fair market value.
v) Requires the applicant to take reasonable steps to
ensure that each investor who is a natural person who is
not an accredited investor has knowledge and experience
in financial business matters that he or she is capable
of evaluating the merits and risks of the prospective
investment.
vi) Requires the applicant to file with the commissioner
and provide to investors a disclosure document, as
defined, and a Small Company Offering Registration (SCOR)
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disclosure document on Form U-7, no less than 10 business
days prior to the commencement of the offering of
securities.
vii) Provides a three day right of rescission.
viii) Prohibits an applicant from direct solicitation.
(1) Defines "direct solicitation" as any in person
face to face conversation between the applicant or any
of its founder, promoters, officers, directors,
controlling persons, agents, or other persons acting
directly or indirectly on behalf of the applicant and
any investor or prospective or any person acting
directly or indirectly on behalf of, or in regular
communication with, the investor.
ix) Requires the applicant to set aside in a separate
third-party escrow account all funds raised as part of
the offering to be held in escrow until that time of
minimum offering amount is reached. The issuer shall
return all funds if the minimum offering amount is not
reached within one year.
x) Prohibits an applicant from conducting unsolicited
telephone calls.
xi) Place a fiduciary obligation on the applicant to any
investor or prospective investor.
xii) Prohibits an applicant and others as specified from
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being disqualified as a "bad actor" under federal
regulations.
xiii) Prohibits stock splits, stock dividends, spinoffs,
or mergers for a period of two years from the close of
the offering.
xiv) Any other requirement set forth by rule adopted by
the commissioner of DBO.
2)Requires DBO to either issue or deny the permit within 60 days
of receipt of the application otherwise the applicant can
demand a hearing with DBO to explain why the permit has not
been granted.
3)Imposes a filing fee of $200 plus 1/5th of 2% of the aggregate
value of the securities sought to be sold in California for
qualification of the sale of securities by permit.
4)Requires the court to award reasonable attorney's fees and
costs, and authorizes the award of treble and punitive
damages, to a prevailing purchaser in an action brought
against any person who violates conditions of qualification by
permit.
5)Provides that a plaintiff is not required to plead or prove
that the defendant acted with scienter.
EXISTING FEDERAL LAW:
1)Pursuant to the Jumpstart Our Business Startups (JOBS) Act (Public
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Law 112-106), authorizes the use of general solicitation and
general advertising in certain circumstances not previously
authorized. Title II of the JOBS Act, operative September 23,
2013, lifted the restriction against use of general solicitation
and general advertising, when sales are made only to accredited
investors and other requirements are met. Title III of the JOBS
Act, otherwise known as the CROWDFUND Act, lifted the restriction
against use of general solicitation and general advertising to
both accredited and non-accredited investors.
2)Provide for the Securities Act of 1933, which establishes a
framework for regulating the offer and sale of securities and
ensuring the protection of investors that purchase those
securities. Generally speaking, the Securities Act of 1933
requires the offer or sale of all securities to be registered with
the Securities and Exchange Commission (SEC) and to be structured
as prescribed in federal law and regulation, unless the offer or
sale is covered by an exemption. This federal act also require
those who offer (i.e., market) and sell securities to be licensed
as investment advisers or broker-dealers, unless either the
transaction or the activity being undertaken is exempt.
3)Provides for Regulation D, one of the regulations promulgated by
the SEC to implement the Securities Act of 1933. Regulation D
authorizes a series of exemptions from the registration
requirements of the Securities Act of 1933 and includes eight
rules, denoted Rules 501 through 508, which are codified as 17 CFR
230.501 through 230.508.
a) Rule 501 of Regulation D defines accredited investors as,
among other things, financial institutions, securities
broker-dealers, large pension plans, corporate entities with
assets in excess of $5 million, and other large, financially
sophisticated entities. An accredited investor also includes:
i) Any natural person whose individual net worth, or joint
net worth with that person's spouse, exceeds $1 million at
the time of their purchase of securities, exclusive of their
primary residence; or,
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ii) Any natural person with an individual income in excess
of $200,000 in each of the two most recent years, or joint
income with that person's spouse in excess of $300,000 in
each of those years, together with a reasonable expectation
of reaching the same income level in the current year.
b) Rule 504 of Regulation D authorizes the offer and sale of up
to $1 million in securities by an issuer, as long as the offer
and sale are made:
i) Exclusively in one or more states that provide for the
registration of the securities, and require the public filing
and delivery to investors of a substantive disclosure
document before the sale of the securities (this is the
provision of Rule 504 applicable to this bill);
(1) In one or more states that have no provision for
the registration of the securities or the public filing or
delivery of a disclosure document before sale, if the
securities have been registered in at least one state that
does provide for such registration, public filing and
delivery before sale, as specified; or,
(2) Exclusively according to state law exemptions from
registration that permit general solicitation and general
advertising, as long as sales are made only to accredited
investors (this is the provision of Rule 504 that was
applicable to prior bills sponsored by this bill's
sponsor).
EXISTING STATE LAW:
1)Provides that it is unlawful for any person to offer or sell
any security in this state, unless such offering or sale has
been qualified by the commissioner, as specified, or unless
the offering or sale is covered by an express exemption.
[Corporations Code Section 25110]
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2)Authorizes the qualification by notification of any security
issued by a person that is the issuer of a security registered
under Section 12 of the Securities Exchange Act of 1934 or
issued by an investment company registered under the
Investment Company Act of 1940. [Corporations Code, Section
25112]
a) Requires an application for qualification by
notification to contain the maximum amount of securities
proposed to be offered in California; consent to service of
process; information about any adverse order, judgment, or
decree entered in connection with the offering by another
state regulator, the SEC, or a court (if applicable); and
any additional information required by rule of the
Commissioner.
b) Provides that if no stop order or other order postponing
or suspending the effectiveness of any qualification is in
effect, qualification of the sale of the securities
automatically becomes effective, and the securities may be
offered and sold in accordance with the application, on the
10th business day after the application is filed or last
amended, or at an earlier time specified by the
Commissioner.
3)Establishes "qualification by permit" which states all
securities, whether or not eligible for qualification by
coordination under Section 25111 or qualification by
notification under Section 25112, may be qualified by permit
under this section. An application for a permit under this
section shall contain any information and be accompanied by
any documents as shall be required by rule of the
commissioner, in addition to the information specified in
Section 25160 and the consent to service of process required
by Section 25165. For this purpose, the commissioner may
classify issuers and types of securities. [Corporations Code,
Section 25113]
4)Contains several exemptions from the requirement immediately
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above. Two of the most relevant exemptions for purposes of
this bill include Corporations Code Sections 25102(f) and
25102(n).
a) 25102(f) provides an exemption for any offer or sale of
any security in a transaction that meets all of the
following criteria: i) sales of the security are made to
an unlimited number of accredited investors and up to 35
other persons, who are not accredited investors; ii) all
purchasers either have a pre-existing personal or business
relationship with the offeror, or can reasonably be assumed
to have the capacity to protect their own interests in
connection with the transaction, by reason of their
business or financial experience, or the business or
financial experience of their professional advisers; iii)
each purchaser represents that he or she is purchasing for
his or her own account, and not with a view to or for sale
in connection with any distribution of the security; and
iv) the offer and sale of the security is not accomplished
through the publication of any advertisement.
25102(n) provides an exemption for any offer or sale of any
security in a transaction that meets all of the following
criteria: i) the issuer is not a blind pool issuer, as
that term is defined by the commissioner; ii) sales of
securities are made only to qualified purchasers or other
persons the issuer reasonably believes to be qualified
purchasers; iii) each purchaser represents that he or she
is purchasing for his or her own account, and not with a
view to or for sale in connection with any distribution of
the security; iv) each natural person purchaser is provided
with a disclosure statement that meets the disclosure
requirements of federal Regulation D, at least five
business days before they purchase or commit to purchase
the security; v) the offer and sale of the security is made
by way of a general announcement, whose content is strictly
limited; and vi) telephone solicitation by the issuer is
not permitted, until and unless the issuer determines that
the prospective purchaser being solicited is a qualified
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purchaser.
Qualified purchasers are those who meet one or more of
several criteria listed in subdivision (n). Generally
speaking, these criteria describe persons with some degree
of financial sophistication, though the qualified purchaser
bar is lower than the accredited investor bar. As an
example, an individual is a qualified purchaser if that
person individually, or jointly with their spouse, has a
minimum net worth of $250,000 and had, during the
immediately preceding tax year, gross income in excess of
$100,000, and reasonably expects gross income in excess of
$100,000 during the current tax year. Alternately, the
term applies to individuals who have a minimum net worth of
$500,000, exclusive of their home, home furnishings, and
automobiles. Natural persons are limited to investing no
more than 10% of their net worth in any 25012(n)
investment.
5)Provides a fee of $2,500 for filing an application for
qualification of the sale of securities by permit.
[Corporations Code, Section 25608]
FISCAL EFFECT: Unknown.
COMMENTS:
This bill is sponsored by Small Business California, to allow
small businesses and start-ups to more readily access capital.
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AB 2178 is the same bill that moved through the legislative
process last year, AB 722 (Perea, May 5, 2015 version). AB 722
passed out of this committee and passed out of Assembly
Judiciary with additional investor protections and was held in
the Assembly Appropriations Committee. While this measure may
have more protections than what was previously voted on in this
committee, it is important to highlight that since AB 722 passed
this committee, the SEC finalized the rules for federal
Crowdfunding. This poses the question, why is this measure
necessary and why does California need to create its own
Crowdfunding framework?
This measure allows applicants to "qualify by permit" under
which applicants also known as issuers can use general
solicitation and general advertising with the exception of
direct solicitation and unsolicited telephone calls to attract
both accredited and non-accredited investors.
Under existing law, there are only three ways to qualify a
securities offering, all of which require significant review of
the offering by either the SEC or DBO. These three ways include
coordination (Corporations Code Section 25211; involves
offerings registered under the Federal Securities Act of 1933);
notification (Section 25212; involves securities registered
under Section 12 of the Securities Exchange Act of 1934 or
investment companies registered under the Investment Company Act
of 1940); and permitting (a rigorous and often costly process in
which applicants apply to DBO for a permit that is good for one
year; Section 25213; according to DBO, only 125 permit
applications were filed with the DBO in 2015).
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AB 2178 takes the third approach of permitting. An applicant
turns in a permit application to offer securities. The DBO has
60 days to approve or deny a permit otherwise the applicant can
ask for a hearing from the DBO.
Crowdfunding:
AB 2178 uses the term "crowdfunding" in the measure. Whether or
not AB 2178 is actually crowdfunding is debatable. Crowdfunding
is a collective cooperation of people who network and pool their
money and resources together, via the internet, to support
efforts initiated by other organizations. Crowdfunding literally
attracts a "crowd" of people, each of whom takes a small stake
in a business idea by contributing towards an online funding
target. Crowdfunding has become a popular and alternative
method of raising finance for a business, real estate
investments, projects or ideas and has become popularized online
by sites such as Kickstarter, Wefunder, Crowdfunder and
RockthePost.
Crowdfunding is a means to raise money by attracting relatively
small individual contributions from a large number of people. In
recent years, crowdfunding websites have proliferated to raise
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funds for charities, artistic endeavors and businesses. These
sites did not offer securities, such as an ownership interest or
share of profits in a business; rather, money was contributed in
the form of donations, or in return for the product being made.
While the goal of this measure is admirable, providing increased
access to capital for small businesses, the risks associated
with the measure could be at the expense of those most
vulnerable, un-sophisticated non-accredited and accredited
investors. AB 2178 does have a cap of $5,000 which weakens the
ability for an issuer to take an investor's lifesavings but
small business investments have even greater risk than normal.
About 50 % of all small businesses fail within the first five
years according to a crowdfunding warning document issued by the
North American Securities Administrators Association (NASAA).
AB 2178 does not provide for a platform or portal to solicit
accredited and non-accredited investors. AB 2178 does require
issuers to place the investment in a third-party escrow account
instead but the measure is vague on who the escrow holder would
be, what protections would exist and what disclosures would be
required by the escrow holder. Since a platform is not used it
is not clear what method an issuer would use as far as general
solicitation and general advertising under AB 2178. Federal
Crowdfunding along with AB 2178 expands securities to
equity-based crowdfunding. The public most often views
crowdfunding as donation based.
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Chart below lays out important pieces of the federal
Crowdfunding Act and AB 2178
------------------------------------------------------------------
| | Federal | AB 2178 |
| | Crowdfunding ACT | |
|------------------------+--------------------+--------------------|
|Nature of Authorization |Exemption from |Qualification by |
| |registration |Permit |
| |requirements of the | |
| |Securities Act of | |
| |1933 | |
|------------------------+--------------------+--------------------|
|Maximum Total Value of |$1 million per |$1 million per |
|Securities That May Be |12-month period |12-month period |
|Sold In Reliance on the | | |
|Authorization | | |
|------------------------+--------------------+--------------------|
|Maximum Aggregate Value |Investors with |Non-accredited |
|of Securities That May |annual income or |investors: $5,000 |
|Be Sold to a Single |net worth <$100K: |or a greater amount |
|Investor |greater of $2K or |as determined by |
| |5% of annual income |the commissioner. |
| |or net worth. | |
| | |Accredited |
| |Investors with |investors: No |
| |annual income or |limit other than |
| |net worth of $100K |the $1 million cap. |
| |or more: 10% of | |
| |annual income or | |
| |net worth, not to | |
| |exceed $100K. | |
|------------------------+--------------------+--------------------|
|Is An Intermediary |Yes. Transactions |No |
|Required? |must be conducted | |
| |through a | |
| |registered broker | |
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| |or a registered | |
| |funding portal. | |
|------------------------+--------------------+--------------------|
|Requirements Applicable |Broker or portal |N/A |
|to Intermediaries |must register with | |
| |the SEC and FINRA; | |
| |provide specified | |
| |disclosures to | |
| |investors; ensure | |
| |that each investor | |
| |reviews specified | |
| |education | |
| |information that | |
| |will be established | |
| |by the SEC by | |
| |regulation and | |
| |affirms that they | |
| |understand the | |
| |risks of the | |
| |investment they are | |
| |about to undertake; | |
| |perform background | |
| |checks on persons | |
| |with key management | |
| |roles in the | |
| |issuer's | |
| |organization; make | |
| |key information | |
| |provided by the | |
| |issuer available to | |
| |investors; ensure | |
| |that all offering | |
| |proceeds are only | |
| |provided to the | |
| |issuer when the | |
| |aggregate capital | |
| |raised from all | |
| |investors is equal | |
| |to or greater than | |
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| |a target offering | |
| |amount, and allow | |
| |investors to cancel | |
| |their commitments | |
| |to invest in | |
| |accordance with | |
| |rules to be | |
| |promulgated by the | |
| |SEC; undertake | |
| |efforts to ensure | |
| |that no individual | |
| |investor exceeds | |
| |the maximum | |
| |allowable purchase | |
| |of crowdfunding | |
| |offerings; protect | |
| |the privacy of | |
| |information | |
| |collected from | |
| |investors; refrain | |
| |from compensating | |
| |promoters, finders, | |
| |or lead generators | |
| |for providing the | |
| |broker or funding | |
| |portal with | |
| |personal | |
| |identifying | |
| |information about | |
| |any potential | |
| |investors; and | |
| |prohibit its | |
| |directors, | |
| |officers, or | |
| |partners from | |
| |having any | |
| |financial interest | |
| |in an issuer using | |
| |its services. | |
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|------------------------+--------------------+--------------------|
|Requirements Applicable |Issuers must file |Applicants must |
|to Issuers/Applicants |with the SEC and |file with the |
| |provide to |commissioner and |
| |investors and the |provide to |
| |broker or funding |investors a Small |
| |portal all of the |Company Offering |
| |following: key |Registration Form |
| |information about |U-7. The U-7 is a |
| |the identity of the |37-page document |
| |issuer, its key |(not including |
| |owners and |attachments) that |
| |management |includes |
| |personnel, its |information about |
| |business plan, a |the applicant, its |
| |description of the |management, and its |
| |financial condition |business plan, and |
| |of the issuer (see |about the offering, |
| |detail below); a |including a |
| |description of the |description of the |
| |stated purpose and |purpose and |
| |intended use of the |intended use of the |
| |proceeds of the |proceeds of the |
| |offering; the |offering. |
| |target offering | |
| |amount, deadline to |Applicants must |
| |reach the target |return all money |
| |offering amount, |raised from |
| |and regular updates |investors, if they |
| |regarding the |do not raise enough |
| |progress of the |to meet their |
| |issuer in meeting |minimum offering |
| |the target |amount. |
| |offering; the price | |
| |to the public of |Prohibits direct |
| |the securities |solicitation. |
| |being offered; a | |
| |description of the | |
| |ownership and | |
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| |capital structure | |
| |of the issuer, and | |
| |including a | |
| |description of | |
| |specified risks to | |
| |purchasers. | |
| | | |
| |Issuers are | |
| |prohibited from | |
| |advertising the | |
| |terms of the | |
| |offering, except | |
| |through notices | |
| |that direct | |
| |investors to the | |
| |broker or funding | |
| |portal. Direct | |
| |solicitation of | |
| |investors is not | |
| |allowed. | |
| | | |
| |Issuers are | |
| |prohibited from | |
| |compensating or | |
| |committing to | |
| |compensate, | |
| |directly or | |
| |indirectly, any | |
| |person to promote | |
| |its offerings | |
| |through | |
| |communication | |
| |channels provided | |
| |by a broker or | |
| |funding portal, | |
| |without taking | |
| |steps to ensure | |
| |that the person | |
| |clearly discloses | |
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| |receipt, past or | |
| |prospective, of | |
| |such compensation. | |
------------------------------------------------------------------
General Solicitation & General Advertising:
As their names imply, general solicitation and general
advertising are not targeted. They reach an audience that
includes both accredited and non-accredited investors.
According to the SEC, general solicitation includes
advertisements published in newspapers and magazines, public
websites, communications broadcasted over television and radio,
and seminars where attendees have been invited by general
solicitation or general advertising. Use of an unrestricted,
and therefore publicly available, website also constitutes
general solicitation. General advertising is general
solicitation made by means of an advertisement.
SCOR:
California, under existing law, already has the SCOR program
which was established through legislation in 1986. California
requires that SCOR offerings ($1 million or less) must be
qualified by the Commissioner of DBO. Applicants that satisfy
SCOR conditions can use the Form U-7 disclosure document from
the NASAA. However, SCOR applicants must provide the financial
information required by the DBO rather than those required by
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Form U-7. The current SCOR program is perceived as time
consuming and burdensome and is looked upon as unsuccessful.
Over the years, DBO has received very few applications on an
annual basis.
AB 2178, instead of working within the SCOR program and
improving the existing qualification by permit, AB 2178 layers a
new permit application process on top of the SCOR program. The
SCOR program also only applies intrastate while AB 2178 states
"within or outside the state."
Background:
On April 5, 2012, President Obama signed landmark legislation,
H.R. 3606, the Jumpstart Our Business Startups Act (the "JOBS
Act"). The JOBS Act makes it easier for startups and small
businesses to raise funds. This legislation passed Congress
through a 73-26 Senate vote and a 380-41 House vote. As far as,
AB 2178 is concerned, Title III of the JOBS Act required the SEC
to develop new rules permitting capital raising by
"crowdfunding."
In October of 2013, the SEC issued the proposed crowdfunding
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rules in a 585 page document. The SEC struggled to create the
final rules that respected the flexible and democratic nature of
crowdfunding (which makes it so appealing to very small and
early stage start-up companies) while also implementing
sufficient regulation to satisfy consumer and investor
protection critics who fear that investment crowdfunding is far
too open to abuse and fraud.
On October 30, 2015, the SEC adopted final rules under Title III
of the JOBS Act. The JOBS Act provided for a new exemption under
the Securities Act of 1933 that will permit securities-based
crowdfunding by private companies without registering the
offering with the SEC. The final rules become effective in May
2016 except that the forms enabling funding portals to register
with the SEC became effective on January 29, 2016.
Additionally, the SEC staff must submit a report to the SEC no
later than three years following the effective date of
crowdfunding on the impact of the regulation on capital
formation and investor protection.
Key features of the SEC's final rules:
A company will only be able to raise a maximum aggregate
amount of $1 million through crowdfunding offerings per
12-month period.
Companies raising less than $500,000 through crowdfunding
within any 12-month period will need to share financial
statements and income-tax returns with their investors and
those raising more than $500,000 will be obligated to provide
audited financial statements to investors.
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Investors with an annual income or net worth of less than
$100,000 will be permitted to invest a maximum of $2,000 or 5%
of their annual income or net worth (whichever is greater) per
12-month period.
Investors with an annual income or net worth equal to or
greater than $100,000 will be permitted to invest up to 10% of
their annual income or net worth (whichever is greater) per
12-month period up to a total maximum of $100,000 in
securities.
Companies conducting a crowdfunding offering will need to file
certain information with the SEC, the relevant intermediary
facilitating the crowdfunding offering and potential
investors.
Private crowdfunding offerings will be conducted exclusively
online through a registered broker or funding platform
(portal). Funding platforms will be required to register with
the SEC. Non-US crowdfunding platforms will be able to
register with the SEC, subject to an on-site examination.
Private crowdfunding offerings will be conducted exclusively
online through broker or funding platforms developed in
partnership with the Financial Industry Regulatory Authority
(FINRA) and registered with the SEC.
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NASAA
AB 2178 requires an issuer to file with the administrator
(Commissioner of DBO) a small company offering registration
disclosure document on Form U-7. The form is found at the NASAA
website:
http://www.nasaa.org/industry-resources/corporation-finance/scor-
overview/scor-forms/. The form goes into detail, among other
things, the type of investment, potential risks to the investor,
the offering amount, and the deadline to reach the offering.
Federal Regulation A+:
On March 24, 2015, the SEC adopted final rules to implement the
rulemaking mandate of Title IV of the JOBS Act by adopting
amendments to Regulation A. In December 2013, the SEC had
released a proposed rule that essentially retained the current
framework of Regulation A and expanded if for larger exempt
offerings. Existing Regulation A provided an exemption from the
registration requirement of Section 5 for certain smaller
securities offering by private companies. The securities sold
in Regulation A offering are not considered "restricted
securities" and are freely transferable. The "New" Regulation A
provides an exemption for U.S. companies to raise up to
$50,000,000 in a 12-month period. The final rules create two
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tiers: Tier 1 for smaller offerings raising up to $20,000,000
in any 12 month period and Tier 2 for offerings raising up to
$50,000,000. Tier 1 will be subject to both SEC and state blue
sky pre-sale review.
The finalized rules of Regulation A+ should be very appealing to
small businesses.
Questions & Concerns:
1)The federal Crowdfunding rules became final in October, 2015.
We now have a process set up in place nationwide to conduct
equity crowdfunding. Why does California need its own
crowdfunding process? Considering, these final rules are so
new, isn't it too early to cast a shadow on federal
Crowdfunding. The SEC is required to issue a report in 3
years. Should California wait to reevaluate the success or
lack of success of federal Crowdfunding after the first report
is released?
2)AB 2178, if enacted, would allow and promote "regulation
shopping." Issuers/Applicants can determine whether to
register to adhere to federal regulations or state securities
regulations. Even if California's crowdfunding has better
investor protections, why would this point matter, since
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issuers would have the ability to choose the weaker
regulations?
3)The economy is continuing to recover, the unemployment rate is
down, the federal government acted, is there still a need to
act on a statewide level to produce what could be perceived as
"risky" ways to raise capital? The U.S. Treasury gave the
California State Treasurer a total of $168 million in federal
funds from the JOBS Act to provide access to capital to small
businesses through the California Pollution Control Financing
Authority and the California Infrastructure and Economic
Development Bank. The programs guarantee loans made by banks
to small businesses that otherwise couldn't be made either for
lack of collateral or lack of credit history. California
received more money than any other state with the final $57
million provided in August, 2015. Are small businesses
capitalizing on these funds?
4)AB 2178 provides that the securities sold could be "within or
outside California." Wouldn't anything outside California
conflict with federal rules? Other states who have enacted
state crowdfunding proposals only apply intrastate. How will
DBO be able to enforce?
Related Legislation:
AB 2751 (Brown) would create the "Local Economies Securities
Act" by allowing additional securities exemptions. Pending in
the Assembly Banking and Finance Committee.
Previous Legislation:
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AB 722 (Perea) (2015 Legislative Session) would have authorized
a new form of securities offering in California to facilitate
crowdfunding as an alternative to a similar authorization in
federal law under the JOBS Act. Died in the Assembly
Appropriations Committee.
AB 2096 (Muratsuchi) (2014 Legislative Session) would have
created a new way in which a person seeking to offer or sell
securities could qualify their offering, by authorizing the
"qualification by notification" of offers or sales of securities
advertised by means of general solicitation and general
advertising, as specified. Died in the Senate Appropriations
Committee.
AB 783 (Daly) (2013 Legislative Session) provides that an issuer
can offer or sell securities using any form of general
solicitation or general advertising. Died in the Assembly
Banking and Finance Committee.
AB 2081 (Allen) (2012 Legislative Session) provides that an
issuer can offer or sell securities using any form of general
solicitation or general advertising. Died on the Senate Floor.
SB 875 (Price) (2010 Legislative Session) would have exempted
from qualification offerings or sales of securities using a
general solicitation or general advertising, provided the
transaction meets specified requirements, including a
requirement that the sales are made to accredited investors.
Died in Senate Banking and Financial Institutions.
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AB 1644 (Campbell & Briggs) (2001 Legislative Session) would
have exempted from qualification offerings or sales of
securities using a general solicitation or general advertising,
provided the transaction meets specified requirements, including
a requirement that the sales are made to accredited investors.
Failed passage in Assembly Banking and Finance Committee.
Double Referral
This measure is double referred to the Assembly Judiciary
Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
California Asian Pacific Chamber of Commerce
California Association of Competitive Telecommunications
Companies (CALTEL)
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California Association of Micro-economic Opportunity (CAMEO)
California Black Chamber of Commerce
California Disabled Veteran Business Alliance
California Fence Contractors Association
California Hispanic Chambers of Commerce
California Metals Coalition (CMC)
California State Council of Laborers
Flasher Barricade Association
Golden Gate Business Association
Greater Geary Boulevard Merchants & Property Owners Association
National Association of Women Business Owners (NAWBO) -
Sacramento Valley
National Federation of Independent Business (NFIB)
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North East Mission Business Association (NEMBA)
Northern California Independent Booksellers Association (NCIBA)
Plumbing Heating Cooling Contractors of California (PHCC)
San Francisco Builders Exchange
San Francisco Chamber of Commerce
San Francisco Committee on Jobs
San Francisco Council of District Merchants Association (SFCDMA)
San Francisco Locally Owned Merchants Alliance
San Francisco Small Business Network
Small Business California (SB-Cal)
Small Business Majority
Small Manufacturers Association of California
South Bay Entrepreneurial Center (SBEC)
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Opposition
Public Investors Arbitration Bar Association (PIABA)
Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
319-3081