The team at Crowdfund Capital Advisors (CCA) has issued their annual warning to firms that utilized Reg CF (Regulation Crowdfunding) to file their annual statements – as required by the exemption. If a company has not filed their annual report they are in breach of the rules under Reg CF.
To quote the Securities and Exchange Commission (SEC):
An issuer that sold securities in a Regulation Crowdfunding offering is required to provide an annual report on Form C-AR no later than 120 days after the end of its fiscal year. The report must be filed on EDGAR and posted on the issuer’s website. The annual report requires information similar to what is required in the offering statement, although neither an audit nor a review of the financial statements is required. Issuers must comply with the annual reporting requirement until one of the following occurs:
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- (1) the issuer is required to file reports under Exchange Act Sections 13(a) or 15(d);
- (2) the issuer has filed at least one annual report and has fewer than 300 holders of record;
- (3) the issuer has filed at least three annual reports and has total assets that do not exceed $10 million;
- (4) the issuer or another party purchases or repurchases all of the securities issued pursuant to Regulation Crowdfunding, including any payment in full of debt securities or any complete redemption of redeemable securities; or
- (5) the issuer liquidates or dissolves in accordance with state law.
Any issuer terminating its annual reporting obligations is required to file notice on Form C-TR reporting that it will no longer provide annual reports pursuant to the requirements of Regulation Crowdfunding.
CCA, a Reg CF data provider, said they looked at the number of firms that utilized Reg CF to raise money online and filed the Form C-AR and the results were “uncomfortable.”
“Of the 2,235 issuers that had closed a successful Regulation Crowdfunding offering by December 31, 2021 (the period whereby an issuer would need to file at least one annual report and not filed a notice to terminate reporting), 57.6% of them had NOT filed any reports? (A 3% decrease over last quarter). In addition, most of the rest have failed to file continually, meaning they may have filed once but not again or a few times but may have missed a filing.”
So, the majority of firms that have utilized Reg CF have not complied with the law by not filing Form C-AR – something the SEC frowns upon.
CCA also points to Law Cloud (A CI advertiser), an online legal service supporting issuers raising money using Reg CF and other exemptions, which may be able to help out.
The good news, I guess, is the SEC is aware of this shortcoming and has yet to take action. This is probably due to resources being pointed in other directions, like acts of fraud, as opposed to late filings. Still, issuers should be completing this task – if they want to remain compliant under existing law.
