Denying Potential Issuers Access to the Platform
To stay within the safe harbor established by the SEC, the Portal may deny access to potential issuers where the funding portal has a reasonable basis for believing that the issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection. Thus, the funding portal must deny access if it reasonably believes that it is unable to adequately or effectively assess the risk of fraud on the part of the issuer or its potential offering to continue to rely on the conditional safe harbor provided by Rule 402. This obligation also applies to situations where the issuers or offerings have been accepted to the platform and the funding portal later becomes aware of the potential for fraud. In that case, the Portal will promptly remove the offering from the platform.
Notices Regarding Promoters of the Issuer
At the time that an investor opens an account with the Portal, the Portal informs the investor that anyone who promotes an offering in exchange for compensation or who is a founder or an employee of an issuer promoting the offering through the communication channels on the platform must disclose the fact that he or she is engaging in promotional activities on behalf of the issuer.
Curation of Offerings by the Portal
The Portal is not “curating” (limiting offerings on a platform) beyond exercising its ability to determine whether and under what terms to allow issuers onto the Portal and will ensure that such curation does not result in the provision of investment advice. Any curation does not or cannot be interpreted as a claim that the issuers on the platform “are safer or better investments than those listed on other platforms.”
In keeping with the prohibition on providing investment advice, the Portal only highlights specific issuers or offerings through the application of objective criteria that have been reasonably designed to highlight a broad selection of issuers, including the geographic location of the issuer, and the number or amount of investment commitments made.
No portal can receive, special or additional compensation for identifying or highlighting (or offering to highlight) an issuer or an offering on the platform.
Specifically, the Portal will only use the following criteria, by way of example, to sort offerings on its platform: Geographic location, the number or amount of investment commitments made, the type of securities offered, broad categories pertaining to the type of company/project seeking funding (energy operator, technology company, alternative energy project, etc.), (if applicable) broad categories characterizing the type of energy sought to be produced (oil, gas, oil & gas, wind power, solar power, geothermal).
Generally, the Portal is required to, and does, make an issuer’s required disclosures available to the public on its platform for a minimum of 21 days before any security may be sold in the offering, and throughout the offering period; provide disclosure to investors about the compensation the intermediary receives.
The Portal’s Communication to the Public
The Portal routinely communicates with the public to, among other things, market its services. All Portal communications or advertisements to the public, including written communications distributed to one or more investor, are based on principles of fair-dealing and the content shall always be fair and balanced.
The Portal’s communication with the public shall not include false, exaggerated, unwarranted, promissory or misleading statements or claims. For instance, prohibited content would include even a slogan, graphic or eye catching headline which is promissory in nature or hints at the potential future success of a specific offering or the offerings posted on the portal in general. Likewise, profit forecasts are prohibited, with the exception of a hypothetical illustration of mathematical principles, provided that it does not predict or project the performance of an investment.
The Portal does not make recommendations or provide investment advice. Statements that could be perceived as endorsements or suggestions that an offering is of a higher quality, safer or worthier than others, could constitute a recommendation and thus, a breach of the rules. Accordingly, these statements will be strictly avoided. This applies to posted article, reports and other content prepared by third-parties. Prohibited third-party content includes content with impermissible investment advice or recommendations or that contain misleading statements.
The Portal abides by FINRA’s Notice to Members 17-18 regarding guidance on digital media communications, available at http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf.
Communication Channels for Issuers and Investors
The Portal and its associated persons may not participate in communications through these channels. Instead, the Portal and its associated persons only establish guidelines about communication through the provided channels and remove abusive and fraudulent communications.
These communication channels are open to the public but only registered users are permitted to post on them. A user without an account cannot make or access a post. Only registered users can comment on the investment opportunity. Consequently, anonymous comments are not allowed. An issuer that comments on the system will be identified as being an issuer.
Each comment must be approved by the administration moderator. Currently, no rating system is being utilized with respect to the comments. However, should any rating system be utilized, it will contain the ability to encompass both positive and negative ratings.
Registered users may post under their real names or under aliases. All posts are displayed, but only registered users may post and all posts are moderated and must be admin-approved before the post will appear to anyone but the poster.
Any person or company that is receiving compensation in exchange for expressing an opinion must make such a disclosure on every comment that he/she/it posts.
Users may share the public-facing landing pages for each investment opportunity through built-in share buttons or through their own means on social media, by email or any other communication methods
The public is permitted access to view to discussions made in the communication channels. The posting of comments is restricted to those persons who have opened an account on the Portal.
Any person posting a comment in the communication channels clearly and prominently disclose with each post whether he or she is a founder or an employee of an issuer engaging in promotional activities on behalf of the issuer, or is otherwise compensated, whether in the past or prospectively, to promote the issuer’s offering. Abusive or potentially fraudulent communications are prohibited.
As to investment opportunities, all communications regarding the terms of the issuer’s offering must occur through the Portal on which the offering is listed.
Because the Portal is currently structured solely as a funding portal, it is not allowed to post any information on the communication channels it has created create to connect issuers and investors. The portal will also ensure that any founder, employee, or promoter of the issuer’s offering properly discloses their identity in any post. The Portal’s moderators must specifically approve each comment and as required by law, will remove any potentially fraudulent or abusive comments made on the Platform’s communication channels.
Advertising the Funding Portal and Offerings
The Portal engages and complies with the following:
- It advertises its own existence;
- It identifies issuers or offerings in its advertisements based on objective criteria that would identify a large selection of issuers—namely, those that are focused on technologies, exploration, production or company development in the energy industry, and ensures that such criteria used do not implicitly endorse one issuer or offering over others and are consistently applied to all issuers and offerings;
- It abides by the prohibition from receiving special or additional compensation for identifying or highlighting an issuer or offering in its advertisements; and
- It advertises in a variety of media formats, including but not limited to social media, internet channels, and other media channels, as the types of media formats that may be used are not restricted by the rules.
Protecting the Privacy of Information Collected from Investors
The Portal will protect the privacy of information collected from investors. The Portal complies with Regulation S-P, Regulation S-ID, and Regulation S-AM, and the customer privacy requirements of 17 C.F.R. § 248 as they apply to broker-dealers as well as with the provisions relating to examination and inspection of books and records and facilities by the SEC and FINRA. In general, these regulations obligate the Portal to have its own policies and procedures in place to protect nonpublic information about investors, prevent identify theft, and limit the information shared with affiliates, as already stated herein.
The full text of Regulations S-P, S-ID, and S-AM (17 C.F.R. §§ 248.1–.30) is available at https://www.gpo.gov/fdsys/pkg/CFR-2012-title17-vol3/pdf/CFR-2012-title17-vol3-part240.pdf.
Fraud Prevention and Compliance Obligations
As required by Regulation Crowdfunding, the Portal will take the following steps to reduce the risk of fraud:
- The Portal must have a “reasonable basis for believing” that the issuer has met the disclosure and process requirements. The Portal may rely on issuer representations to form that reasonable basis for belief. However, the Portal is responsible for assessing whether reliance on certain issuer representations is reasonable, given its course of interactions with potential issuers. This means that the representation must be detailed enough to evidence that the issuer has a reasonable awareness of its obligations and its ability to comply with those obligations. This is not a simple “check the box” representation; instead, it requires an inquiry into the issuer and the steps it has taken to comply with Regulation CF.
- Intermediaries must have a “reasonable basis for belief” that the issuer has established means to keep accurate records of the holders of securities or simply hire a registered transfer agent. If the issuer has engaged a registered transfer agent, the Portal will be deemed to have met the requirement of establishing a reasonable basis for belief. The Portal has relationships with one or more independent registered stock transfer agents that an issuer can hire to comply with this obligation.
- The Portal will deny access to its platform if it has a reasonable basis to believe that the issuer or any of its officers, directors, or a 20 percent or more beneficial owner is subject to a bad actor disqualification.
- The Portal will deny access to its platform if it has a reasonable basis to believe that the issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection. The Portal must be able to adequately and effectively assess the risk of fraud with respect to the issuer and its offering. If it cannot adequately assess the issuer or resolve concerns, the intermediary must deny access to its platform. If it becomes aware of the potential for fraud after granting access to its platform, it must cancel the offering.
The Portal provides notices to new account holders that disclose the manner in which the Portal will be compensated in connection with offerings and sales made in reliance on Reguation Crowdfunding. The Portal will accept a range of compensation types from issuers (e.g., flat fee, commission, or equity interest) and will ensure the disclosure of each type of compensation that it will accept.
The Portal Makes Issuer Information Available
During the course of an offering, the Portal makes the issuer’s required disclosure information publicly available on the Portal’s website. This information will be available to investors for at least twenty-one days prior to any sale of securities and presented in a manner that allows any visitor, including regulators, to access, download, and save it, by saving the webpage, downloading or saving the Form C offering, printing the webpage to .pdf, or downloading a copy to file. Further, the Portal understands that it must, and will, ensure that an issuer’s disclosures are complete but that it is not required to ascertain whether investors have reviewed the disclosure material.
Portals are permitted to advise an issuer about the structure or content of the offering, which includes preparing the offering documentation. The SEC notes that a funding portal could provide pre-drafted templates or forms to the issuers, and it is permitted to provide advice on the types of securities the issuer can offer, the terms of those securities, and crowdfunding regulations.
Funding portals are required to observe high standards of commercial honor and must not engage in manipulative, deceptive, or other fraudulent devices. Additionally, Funding Portal Rule 200 prohibits a funding portal from including on its website information from an issuer that the portal knows or has reason to know contains any untrue or misleading statement.