Real estate platform RealtyShares has shared their perspective on the recent no-action letter issued by the SEC in response to an inquiry by Citizen VC, Inc. as to that company’s method of onboarding new investors. The letter forwarded to the SEC by Citizen.VC counsel Mintz Levin outlined several policies and procedures aimed at ensuring that the company develops “substantive relationships” with prospective investors it meets online before offering them investment opportunities on its site. The steps essentially call for several levels of interaction between the firm and the prospective investor, all designed to let the firm understand investors’ sophistication and financial circumstances so that it is in a position to evaluate their suitability for complex and risky private securities transactions. The SEC did not disagree with Citizen VC’s approach.
“This no-action letter appears to recognize that online capital marketplaces have effectively changed the way people do business,” said Nav Athwal, RealtyShares’ CEO and co-founder. “In it, the SEC specifically agrees that the quality of the relationship between an issuer and an investor is the most important factor in determining whether a ‘substantive relationship’ exists — that is to say, where an issuer has sufficient information to evaluate a prospective investor’s financial circumstances and sophistication in determining his or her status as an accredited investor. The SEC also clearly agreed that there is no specific duration of time that can be relied upon solely to create such a relationship.”
Athwal explained that RealtyShares will be reviewing the No-Action Letter with their advisors and stated the clarification by the SEC appears to remove the need for a “cooling-off period” when registering new investors. The SEC has effectively removed some uncertainty that existed in this area and should streamline some of the online private placement transactions. RealtyShares welcomed the missive from the SEC;
“[We] commend the SEC for having given clear guidance in this area, and believe that this development will launch a new growth stage in platforms like ours that remain focused on privately-placed security offerings.”
