One of the exemptions from registering a securities offering is if the offering is limited to one state. Some crowdfunding advocates latched onto this exemption and have been pushing for single state crowdfunding at the state legislatures. On April 10, 2014, the SEC issued a Compliance and Disclosure Interpretation on intrastate crowdfunding offerings. The interpretation was overly restrictive.
The SEC said at the time that you can’t use a third-party portal website for an intrastate securities offerings. “Use of the Internet would not be incompatible with a claim of exemption under Rule 147 if the portal implements adequate measures so that offers of securities are made only to persons resident in the relevant state or territory.” In reading that, the SEC waved a big regulatory “NO” finger at using third party sites.
The SEC just retreated slightly from that position, but proved that the SEC does not understand how the internet works. In Question 141.05, published on October 2, the SEC seems to be a bit more lenient when it comes a company using its own website. The SEC acknowledges that a website advertises the company, but could also advertise a securities offering. “Although whether a particular communication is an “offer” of securities will depend on all of the facts and circumstances…”
If the company does make the existence of an investment opportunity available on an unrestricted website, that could be considered a violation of the intrastate exemption. The SEC offers up the solution that a company “could implement technological measures to limit communications that are offers only to those persons whose Internet Protocol, or IP, address originates from a particular state or territory and prevent any offers to be made to persons whose IP address originates in other states or territories. ”
The location of an IP address does not necessarily equate to your state of residence. It may not even equate to where you at the moment you are accessing the internet. One of the great values of the internet is that is defies and defeats physical borders.
Sources:
- SEC staff issues CDI regarding use of the internet in connection with intrastate offerings — how feasible is it? by Cydney Posner in PubCo @ Cooley
- SEC Says Use IP Addresses to Control Intrastate Offerings by Steve Quinlivan in Dodd-Frank
- Intrastate Crowdfunding Advertising by Joe Wallin
- The SEC Needs to Fix Its Intrastate Crowdfunding Guidance by Joe Wallin