Reg CF (Regulation Crowdfunding) is the smallest of the securities exemptions that enables online capital formation. The ecosystem has evolved over the years, having enabled over $1.34 billion as of 2024.
As it stands today, an issuer may raise up to $5 million in a twelve-month period. Both Accredited and Non-Accredited Investors may participate. As the exemption requires a notice filing, it is fairly simple for an issuer to file the necessary document with the SEC and then list the offering on a FINRA-regulated marketplace or work with a Broker-Dealer.
One challenge with the exemption is the follow-on filings required under the rules. Too frequently, issuers raise funds and then reduce communication with investors, leaving them in the dark. As there is a mandated Annual Update (Form C-AR) that must be posted on the SEC website, this can provide an effective way to update on the company’s performance. Yet, some issuers forget, or choose not to, file the mandated document.
While the SEC is aware of this shortcoming, the regulator has bigger things to do than chase small issuers who may just be overwhelmed by the task of launching a company. Or maybe they have shuttdown but this requires a Form C-TR.
CCLEAR, affiliated with Crowdfund Capital Advisors (CCA), has launched a new compliance dashboard to simplify the review of issuers that have pursued a Reg CF offering and may be out of compliance.
The site explains:
“Why does compliance matter? According to SEC rules, issuers who do not file required annual reports may face consequences including: SEC enforcement actions such as fines and cease-and-desist orders; disqualification from conducting future Reg CF offerings; potential loss of the exemption relied upon when raising capital; and potential personal liability for officers and directors. For issuers with 300 or more holders of record who cannot easily terminate their reporting obligation, annual filing requirements continue until eligibility criteria are met.”
Sherwood Neiss, founder of CCLEAR and CCA, states:
“One of the biggest gaps in Regulation Crowdfunding isn’t at the point of the raise — it’s what happens after. Ongoing reporting is critical to investor trust, but until now, it’s been incredibly difficult to track. If we want to unlock higher limits and secondary markets, the industry needs better visibility into compliance. This tool is a step toward making that transparency standard, not optional.”
A failure to file the document could also imperil the pursuit of other exemptions and securities offerings.
While complete access is by subscription, the tracker shares that out of 8784 issuers, 2759 (31.4%) are not compliant, and 1376 are partially compliant. A mere 363 issuers (4.1%) are up to date on their filings.
As there is a movement to increase the Reg CF funding cap to $20 million, the inability of issuers to adhere to the rules is a bit of a black eye for the online capital formation sector. It throws shade on platforms in the sector, which should do a better job of ensuring issuers understand the rules.
The site targets funding portals, broker-dealers, issuers, and regulators. So watch out.
