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SEC No Action Letter Request Updated Letter



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SEC No Action Letter Request Updated Letter

  1. 1. August 21, 2015 Office of Chief Counsel Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Via Web: REQUEST FOR “NO-ACTION LETTER” Re: 1933 Securities Act, Section 2(a)(3) Definition of offer or sale of a security To Whom It May Concern: I am an individual. It is my understanding “An individual or entity who is not certain whether a particular product, service, or action would constitute a violation of the federal securities law may request a 'no-action' letter from the SEC staff.” Quoting from I am writing today to request a “No-Action Letter” confirming that my co-founders, my company and I possess the legal right to “test the waters” via communications with the general public, including by soliciting “Expressions of Interest” (EOI) from non-Accredited persons, provided that no unregistered securities are subsequently offered or sold to non-Accredited purchasers except as provided for under JOBS Act crowdfunding Rules, Title III (“Regulation Crowdfunding”) or Title IV (“Regulation A+”). This “No-Action Letter” request is a follow-up to my original request letter dated September 28, 2014. I am repeating in this letter the original request supplemented by clarifying facts and circumstances that necessitate issuance of such a Letter due to the high probability otherwise of technical Rule violations. My “No-Action Letter” request does not reference Securities Act Section 5 as no “offer” of securities to the general public is being proposed until and unless a JOBS Act public Offering is commenced, such as pursuant to Regulation A+ which may begin with “testing the waters” for an Offering. For example, I may generally advertise to solicit investors in a Regulation D Rule 506(c) JOBS Act-compliant public Offering of my unregistered securities, with the understanding that such general solicitation and general advertising does not, by definition, constitute an “offer” of securities to non-Accredited investors due to the prohibition on such offers and sales to non-Accredited offerees and/or purchasers regardless of their level of financial or professional sophistication. In the course of such general solicitation under 506(c) my advertising will obviously attract non-Accredited persons who may express interest in purchasing the securities being advertised. Other non-Accredited persons may inquire in general about investing in a different Offering if there is one being conducted, or if a future Offering were to commence in which they would be eligible to participate despite their lack of Accredited status and/or lack of sophistication. Your final Rulemaking pursuant to Title III of the JOBS Act will authorize me, my co-founders or my company to offer and sell unregistered securities to members of the general public on the condition that all “offers” and “sales” thereof occur by way of a registered “funding portal” and comply with the Commission's new Crowdfunding exemption, which will preempt state registration requirements. See: P.O. Box 636, Kurtistown, HI 96760 Mobile +1.808.769.1147
  2. 2. Your final Rulemaking pursuant to Title IV of the JOBS Act has authorized me, my co-founders or my company to offer and sell unregistered securities to members of the general public on the condition that such persons are “qualified purchasers” as will be interpreted by a pending appellate court case brought by the securities regulators for the states of Massachusetts and Montana. As the Commission is aware, you have proposed to define “qualified purchasers” to mean “all offerees of securities in a Regulation A offering and all purchasers in a Tier 2 offering” however the DC court may redefine qualified purchaser more narrowly, so as to not permit sales to certain unsophisticated members of the general public. See: Under the new Code of Federal Regulations section 230.255, “solicitation of interest” documents or materials are permitted in advance of a planned Regulation A Offering, on condition that the so-called “testing the waters” solicitation materials are provided to the Commission at the time of application for qualification. They must also contain a required legend/disclaimer as detailed in Section 230.255. See: As stated explicitly in the new Section 230.255 – “Such communications are deemed to be an offer of a security for sale for purposes of the antifraud provisions of the federal securities laws.” My proposed EOI communications will “test the waters” in general, attracting non-Accredited investors to whom no securities are being offered because for example the securities being advertised pursuant to Rule 506(c) are not being offered to non-Accredited purchasers. In the alternative, my EOI advertising materials may not contain any information about price, valuation, forecasts of future performance, nor convey any representation as to past performance and investment outcomes for any previous investors in other Offerings that anyone associated with my company, myself or my co-founders might have participated. My EOI materials might not be disseminated as part of any Rule 506(c) Offering general advertising. For example, my Rule 506(c) Offering materials might communicate words to the effect of “This is an Offering intended for Accredited investors only. If you are not a qualified Accredited investor but wish to submit an Expression of Interest anyway to be contacted directly in the future if another public offer is made to non-Accredited investors, please call or click to provide your contact details.” Clearly the Commission should issue a “No-Action Letter” to me to clarify that soliciting such EOI represents a mechanism of pre-Offering public communications permissible under the new JOBS Act Rules. It is my belief the Commission cannot prohibit me, my co-founders nor my company from soliciting the general public seeking “Expressions of Interest” (EOI) prior to commencing either a JOBS Act Title III or Title IV public Offering because, by definition, under Section 2(a)(3) of the Securities Act such EOI solicitations are not “offers” of any security to offerees. Similarly, it is my belief that it was not the intent of Congress nor the Commission to create uncertainty as to whether persons who contact issuers in response to Rule 506(c) general solicitation/general advertising materials but who are not Accredited persons are legally permitted to request a future direct Offering of securities. It is no longer useful, nor correct, to presume all public communications with potential investors automatically constitute “offers” of securities for purposes of anti-fraud provisions of securities laws. In the case of general Expressions of Interest from non-Accredited investors who are not eligible to invest in a Rule 506(c) Offering, or when no Offering of any kind is yet being made to anybody but a future Offering might occur, the new Rules are just not clear. I strongly urge the Commission to confirm I have the right to receive such EOI. P.O. Box 636, Kurtistown, HI 96760 Mobile +1.808.769.1147
  3. 3. I have reviewed the previously-issued No-Action Letters under Section 2(a)(3) and it seems clear to me from this and my other analysis that the Commission should concur that there is in fact no “offer” of securities being made in the circumstance I am describing. My proposed actions should not prompt the Commission to recommend enforcement action against me, my co-founders or my company when we solicit EOI from members of the general public prior to commencing a new JOBS Act public Offering. My proposed pre-Offering EOI communications enable follow-ups with interested parties in the future, after the final JOBS Act Title III Rule becomes effective, when my “offers” of unregistered securities to non-Accredited investors are allowed irrespective of the offerees' sophistication or qualification. In the alternative, my proposed pre-Offering EOI communications can enable direct advertising to potential purchasers who have expressed interest in purchasing securities when and if an “offer” can lawfully be made to them in a direct public offering, such as after my new registration statement filing is in effect. My proposed EOI communications are not a Rule 135 notice of proposed registered Offering, because I do not intend to file a registration statement for my future Offering. Rather, I plan only to receive EOI responses from members of the general public who wish to inform me that they might be interested in a future offer of my unregistered securities when my offers are permitted under the final JOBS Act Rules. I respectfully request that the Commission verify, in the “No-Action Letter” that it issues to me, that the Rule 155 safe harbor is still applicable to JOBS Act “private” Offerings of unregistered securities and further that I am authorized to switch from gathering these EOI for my future Offering of unregistered securities to direct marketing of a proposed registered Offering in compliance with Rule 135. See: My proposed EOI communications are also not, strictly-speaking, “testing the waters” communications as defined by current Code of Federal Regulations under Section 230.255, because those Regulation A “solicitation of interest” documents or materials apply only to a proposed Regulation A Offering. My company does not intend to conduct a Regulation A Offering, so “testing the waters” with “solicitation of interest” documents or materials pursuant to Section 230.255 would be inappropriate. Although it is possible that we will decide to conduct a Regulation A+ Offering under Title IV of the JOBS Act, my proposed EOI communications are not meant to commence the selling process for such an Offering. As the Commission is aware, under your present Regulation D Rule 506(c) there is no requirement of any kind for disclaimers or legends as would be required of “testing the waters” Regulation A activities. I am already authorized to publicize literally anything I wish, without even referencing Rule 506(c) and provided that I do not sell unregistered securities to non-Accredited investors my public “offers” under Rule 506(c) are explicitly allowed, subject to the normal anti-fraud provisions of federal and state law. I can already generally solicit and generally advertise my unregistered securities to receive contacts from people who are not Accredited investors, without violating Section 5 of the Securities Act and without being required to comply with Section 230.255. Absent a No-Action Letter, however, I must presume that non-Accredited contact information received in reply to my Rule 506(c) advertising efforts must be destroyed and thus I will need to start over anew with Section 230.255 or Rule 135 or Title III-compliant “funding portal” advertising efforts later and avoid concluding sales of unregistered securities to anyone who makes the mistake of responding with interest to my Rule 506(c) advertising. I respectfully request that the No-Action Letter affirm my Rule 506(c) communications to and with the general public are not “offers” as defined by Section 2(a)(3) with respect to non-Accredited persons. Emily Coombs (Co-Founder of P.O. Box 636, Kurtistown, HI 96760 Mobile +1.808.769.1147