United States: SEC’s Division Of Trading And Markets Grants Relief From Broker-Dealer Registration For Online Platform That Permits Investment In Start-Up Companies

SECOn March 26, 2013, the SEC’s Division of Trading and Markets issued a no-action letter indicating that it would not recommend enforcement action under Section 15(a)(1) of the Exchange Act if a venture capital fund adviser and its management company (collectively, the “fund”) operated a platform through which its members could participate in Rule 506 offerings. The no-action letter is the first relief from broker-dealer registration for a platform that provides investors with a means to invest in start-up companies following the enactment of the JOBS Act. However, the no-action letter does not in any way address the JOBS Act’s crowdfunding exemption, or the ability to conduct a Rule 506 offering using general solicitation, as those final rules have not yet been adopted by the SEC.

The fund is a Delaware corporation and venture capital fund adviser that solely advises venture capital funds. The fund identifies and performs due diligence on start-up companies for which the fund may wish to form investment funds. Once the fund decides to invest in a start-up company, it enters into a non-binding agreement with that company setting a target amount of capital for which the fund will invest. The fund then posts information provided by the start-up company on its website. Such information is available online only to the fund’s members, all of whom must be accredited investors as defined in Rule 501 of Regulation D.

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