The SEC has been relatively lenient with crowdfunding issuers (as opposed to crowdfunding intermediaries), possibly so as not to stifle this emerging industry, so as yet there is not really a "most common" way to get in trouble.

They have brought a series of actions against companies raising under Regulation A for failures to comply with the very technical requirements relating to how Reg A offerings are modified, extended or expanded. They have also brought actions against Reg A issuers for misleading statements.

However, I am not aware of Reg CF issuers getting into the same sort of trouble, even though I have seen significant violations of the various ways they can get into trouble (companies not eligible to use Reg CF, companies failing to extend or expand offerings in compliance with Reg CF, companies making misleading statements, companies violating the Reg CF communications rules). I have heard anecdotally of the SEC warning issuers that they should get advice from a securities lawyer, though.

Completely different process for the two sorts of offering.

In a Reg CF offering, the Form C is filed with the SEC and the moment it shows up on the EDGAR system, the issuer can start accepting investment commitments on the intermediary's site. The SEC does not review or sign off in any way. That doesn't mean they (and other regulators) aren't looking, though!

In a Reg A offering, the SEC must review and "qualify" the offering before it goes live. (We don't use the term "approve"; the SEC never approves or blesses offerings.) If it's a Tier 1 Reg A offering, the states that the offer will be made into also have to sign off.

In both cases, you can "test the waters" before filing or qualification, but any materials you use to test the waters need to be filed with the SEC.

Thanks!

Yes, you can solicit as to what terms people might find attractive, including valuation. I would generally include a disclaimer of some kind saying that just because something has been suggested it doesn't mean that will be reflected in the deal terms if you eventually make an offering.

Sara

Answering a question with a question: how would engaging a transfer agent reduce the number of holders of record?

It's not really a test that you pass or fail. The Howey test is just one of the tests used in securities law to determine whether an instrument being offered is a security or not. There are other tests that can also be used, such as the Reves test. Which should be applied depends, as the SEC says, on the facts and circumstances.

If an instrument meets the various elements of the Howey test, it will be treated as a security. I guess that might be said to be "failing" Howey.

A platform can set parameters for the type of company and offering it will accept. And then it can (indeed, must) deny access if it believes there is potential for fraud or if the issuer has not complied with the regs. Put those together and most platforms have the ability to filter out the types of companies and offerings they don't want to host.

Nothing in the rules prevents it although platforms could impose their own contractual requirements (eg, if you use our platform for TTW you have to use us for the actual offering).

BTW, the SEC were not actually expecting that TTW would happen on platforms! They thought TTW would be on social media or on issuers' own sites.

I am aware of several lawsuits (including class actions) relating to the early Reg A offerings that listed on Nasdaq.

As for Reg CF, there is a case of fraud being handled in bankruptcy court.

Reg D: these cases are unfortunately quite common, both from investors and regulators.

It's early days yet for CF. Class actions aren't worth it for really small offerings.

This question has been the subject of a lot of debate over the years since the JOBS Act was enacted. Some lawyers (and many platforms) take the view that their diligence obligations are limited to those set out in Rule 301 of Reg CF (make sure the issuing company tells you it has complied with its obligations, make sure there's a record-keeping mechanism, and make sure the company isn't disqualified by reason of the bad actor prohibitions). Others point to the provisions of Section 4A(c) of the Securities Act, which says "issuers" are responsible for any misstatements unless by exercise of reasonable due diligence they couldn't have known there was a misstatement, and provides that "issuer" includes anyone "selling" the securities. People in the limited-liability camp argue the portals aren't "selling" and thus aren't "issuers". The SEC says, under certain circumstances, portals may be liable for misstatements by issuers.

This debate may have become largely moot since the 2019 Supreme Court decision in Lorenzo, which provides a separate cause of action under Rule 10b-5 for anyone who "disseminates" a misleading statement. I cannot work out why this decision does not worry portals more.

The other liability provision that should concern portals is Section 9(a)(4) of the Exchange Act, a relatively new addition to that Act, which provides that liability for misleading statements extends to anyone who "willfully participates" in an offering.

In all these cases, liability can be addressed by undertaking due diligence to ensure that the statements made by a company are not misleading.

It's $5 million every 12 months.