4. Kansas adopted the first securities law in 1911 to “keep ‘Kansas money in
Kansas’ and help local farmers and small businesses rather than enriching
‘New York Stock Exchange speculators and gamblers.’”
5.
6. What is a security?
“a contract, transaction or scheme
whereby a person invests his money in a
common enterprise and is led to expect
profits solely from the efforts of the
promoter or a third party.” - Howeytest
7. The Risk Capital Test
Are the funds being raised for a business venture or enterprise?
Is the transaction offered indiscriminately to the public at large?
Are the investors substantially powerless to effect the success of
the enterprise?
Is the investor’s money substantially at risk because it is
inadequately secured?
CA Supreme Court - Silver Hills Country Club v. Sobieski (1961)
Compare to United Housing
Foundation v. Forman
8. What kinds of securities can you sell?
•Common stock
•Preferred stock
•Straight notes
•Convertible notes
•Notes payable in produce
•Revenue sharing agreements
•Preferred stock with no voting rights and no appreciation in value
(Equal Exchange)
•Securities that can be bought and sold in secondary markets
•Securities with no transfer rights
•Etc.
9. Why does it matter if something is a
security?
Extensive compliance work –
• federal registration
•qualification in every state where the
security is being offered
Usually costs > $100,000 in filing fees, legal
and accounting fees, printing costs, etc.
10. There are exemptions to this
requirement . . .
But even the exemptions can be
onerous and costly to comply with
11. Ways to raise funding from unaccredited and
other non-traditional investors
Non-securities
Grants and public-private partnerships
Co-ops
Private Offerings
Direct Public Offerings
12. Nonsecurities
•crowdfunding e.g.
Kickstarter, Indiegogo
• zero interest loans
• memberships/discount
cards
• pre-sales/gift cards
• active involvement
Tangerine Power
Little City Gardens Awaken Cafe
17. What is a DPO?
No precise legal meaning
Offering can be made to the public
Offering can be made to an unlimited
number of unaccredited investors
No underwriter involved
20. On March 12, 2011, the Store reached the minimum Offering amount of $500,000 and
began operations. Shares cost $100 a piece and are available to residents of New York
State. The maximum number of shares one investor can purchase is 100.
21.
22. The Crowdfund Act
A History
Sustainable Economies Law Center, Summer 2010
Never doubt that a small group of thoughtful, committed citizens can change the
world. Indeed, it is the only thing that ever has.
Margaret Mead
23. Federal Reserve Bank of S.F. – Community
Development Investment Review, Vol. 5, Issue 2, 2009
Local Stock Exchanges and National Stimulus by
Michael Shuman
24. Paul Spinrad of Make Magazine Launches a
Crowdfunding Campaign
29. The CROWDFUND Act
Signed by the President on
April 5, 2012
Creates a new federal
exemption for offerings of
up to $1 million in which
each investor invests no
more than 5% of his/her Exempt from state registration
requirements
annual income or net worth
More than $100k – reviewed
offerings are conducted financials
through a registered
intermediary More than $500k – audited financials
Not expected to go into effect for at least one year.
