Impact of the JOBS Act on Private Offerings (Series: The Job Act - A Retrospective & A Look Ahead 2018)

Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
2

The material in this webinar is for informational purposes only. It should not be considered legal,
financial or other professional advice. You should consult with an attorney or other appropriate
professional to determine what may be best for your individual needs. While Financial Poise™
takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™
makes no guaranty in this regard.
While Financial Poise is happy to make this PowerPoint freely available to all, the reader is
cautioned that it was created for use as part of a webinar that featured an extensive verbal
discussion of the topics addressed in the PowerPoint. It was not designed to be read by
itself. Financial Poise webinars can be purchased at www.financialpoise.com. You may also
receive offers for free webinars by subscribing to Financial Poise's DACyak, a free weekly
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DISCLAIMER
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MEET THE FACULTY
MODERATOR:
Robert N. Rapp Case Western Reserve
University School of Law
PANELISTS:
Jordan Fishfeld CFX Markets
Kristofer K. Spreen Calfee, Halter & Griswold LLP
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This webinar explores what many call “accredited investor crowdfunding,” effectively established by the
JOBS Act in mandating the elimination of a ban on general advertising and solicitation in private
offerings carried out pursuant to Rule 506 of Regulation D under the Securities Act of 1933, and
authorizing the creation of Internet platforms specifically designed to facilitate compliant Rule 506
offerings to accredited investors.
Rule 506 of Regulation D permits private offerings by an issuer in unlimited amounts to an unlimited
number of “accredited” investors, as that status is defined in Regulation D, and up to 35 non-accredited
investors, provided all conditions of the Rule, and Regulation D generally, are satisfied. Although
private offerings under Rule 506 have long been a capital formation option for small business and start-
up issuers, a Regulation D prohibition on the use of general advertising or solicitation significantly
limited the ability of issuers to identify and connect with interested accredited investors, while at the
same time preventing those investors from easily identifying desirable investment opportunities.
5

ABOUT THIS WEBINAR (CONT.)
The JOBS Act directed the SEC to eliminate this practical barrier to small business capital formation by removing
the prohibition on general advertising and solicitation for Rule 506 private offerings provided sales are made only
to accredited investors. The SEC responded with the addition of Rule 506(c), which did away with the ban on
general advertising and solicitation for offers, but which imposed a stringent issuer verification requirement for
accredited investor status of purchasers. Buttressing the expanded Rule 506(c) capital formation alternative, the
JOBS Act provided for the creation and operation of Internet platforms for bringing together issuers and
accredited investors.
This webinar presents practical guidance in carrying out a compliant Rule 506(c) private offering and
understanding the operation, and limitations, of the emergent JOBS Act permitted platforms through which
private offerings to accredited investors may be accomplished.
This webinar is delivered in Plain English, understandable to you even if you do not have a background in the
subject. It brings you into an engaging, even sometimes humorous, conversation designed to entertain as it teaches.
And, it is specifically designed to be viewed as a stand-alone webinar, meaning that you do not have to view the
other webinars in the series to get a lot out of it.
6

ABOUT THIS SERIES
Six years after enactment of the Jumpstart Our Business Startups (JOBS) Act, its impact in reducing regulatory burdens and barriers to
capital formation for start-up, small, and emerging growth companies is ripe for consideration. JOBS Act amendments to the federal
securities laws, and mandated SEC rulemaking, significantly enhanced the ability of small business to raise capital in private offerings to
accredited investors, breathed new life into a largely dormant form of limited public offering of up to $50 million via “Regulation A,”
established mechanisms for nationwide equity crowdfunding, reduced the regulatory burden for public offerings by newly defined
“emerging growth companies,” and altered Exchange Act registration and deregistration requirements for smaller companies.
This webinar series examines how the JOBS Act has impacted capital formation through private offerings, as well as corporate finance for
small business issuers generally, and access to the “IPO” market. In each episode, seasoned practitioner panelists explain not only how
the JOBS Act has changed the regulatory landscape to date, but also how small issuers can confidently take advantage of the financing
opportunities and cost efficiencies in capital formation it has created. Panelists also discuss possible future modifications to the JOBS Act
mandated regulatory structure.
As with every Financial Poise Webinar, each episode is delivered in Plain English understandable to investors, business owners, and
executives without much background in these areas, yet is also valuable to attorneys, accountants, and other seasoned professionals. And,
as with every Financial Poise Webinar, each episode brings you into engaging, sometimes humorous, conversations designed to entertain
as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance
their knowledge of this area whether they attend one, some, or all episodes.
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Dates shown are premiere dates; all episodes will be available on demand after
their premiere date.
EPISODES IN THIS SERIES
Episode #1 Impact of the JOBS Act on Private Offerings 4/26/18
Episode #2 Impact of the JOBS Act on Corporate 5/24/18
Finance for Small Issuers
Episode #3 Impact of the JOBS Act on the IPO Market 6/28/18
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Episode #1: The Impact of the JOBS
Act on Private Offerings

THE JOBS ACT: (“JUMPSTART OUR
BUSINESS STARTUPS”)
Signed into law on April 12, 2012 with the stated purpose of increasing
American job creation and economic growth by improving access to capital,
particularly for smaller, growing companies.
Title I: The public offering “on ramp” for “Emerging
Growth Companies”
Title II: General solicitation in private offerings under
Rule 506 of Regulation D
Title III: Equity Crowdfunding
Title IV: “Regulation A-Plus”
10© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™

THE JOBS ACT AND CAPITAL FORMATION
• Improve the efficiency with which capital can be raised.
• Increase overall levels of capital formation in the economy.
• Specifically support capital formation for early stage firms through broader
availability of Rule 506 of Regulation D under the Securities Act of 1933 and
lower search costs of issuers and accredited investors alike.

SOME PERSPECTIVE ON PRIVATE OFFERINGS
“Powering U.S. Business: Private Capital”
In 2017 private equity and debt markets totaled more than $2.4 trillion, exceeding
public stock and bond markets, which raised $2.1 trillion.
An analysis by the Wall Street Journal found that funds raised privately have more
than doubled in size over the past decade, surpassing the growth of public stocks and
bonds available for all investors.
Equity and debt private placements alone amounted to $1.6 trillion, with the balance
coming from private debt sales to large investors ($782 billion), initial coin offerings
($6.5 billion), and equity crowdfunding ($35 million)
SOURCE: Wall Street Journal April 3, 2018

ORIGINAL REGULATION D RULE 506
PRIVATE OFFERINGS
Original Rule 506 (17 C.F.R. §230.506) of Regulation D under the Securities Act of 1933
was adopted as a non-exclusive “safe harbor” under §4(a)(2) [formerly §4(2)] of the
Securities Act, exempting offerings by an issuer “not involving any public offering” from
registration requirements of §5 of the Securities Act.
• Offerings in unlimited amounts to an unlimited number of persons reasonably
believed by the issuer to be “accredited investors,” and up to 35 non-accredited
investors who meet certain business or financial sophistication criteria and are
supplied with required information.
• Subject to Rule 502 “General Conditions,” including a prohibition on “general
solicitation or general advertising.”
• Notice of Sales (Form D) filing requirement

GENERAL SOLICITATION OR GENERAL
ADVERTISING
Regulation D Rule 502(c)
Limitation on Manner of Offering. Neither the issuer nor any person acting on
its behalf shall offer or sell the securities by any form of general solicitation or
general advertising, including, but not limited to, the following:
1) Any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or
radio (subsequently extended to include Internet activity); and
2) Any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.

THE JOBS ACT AND RULE 506
JOBS Act Title II §201
1. Directed SEC revision of Rule 506 of Regulation D under the Securities
Act of 1933 to permit general solicitation or general advertising for offers
and sales of securities provided all purchasers of the securities are
accredited investors and the issuer takes reasonable steps to verify their
accredited investor status.
2. Added §4(b) [now 4(c)] to the Securities Act to provide that a person
maintaining a platform or mechanism permitting the offer or sale of, and
related activities with respect to, securities in compliant Rule 506 private
offerings will not be required to register as a broker-dealer

IMPLEMENTING JOBS ACT § 201
To eliminate the prohibition against general solicitation and general advertising in Rule 506
offerings, in July 2013 the SEC adopted amendments creating a new Rule 506(c), permitting
an issuer to engage in general solicitation or general advertising on certain conditions.
• All purchasers of the securities are accredited investors;
• The issuer takes reasonable steps to verify that such purchasers are accredited investors.
• All terms and conditions of Rule 501 (definition of accredited investor), Rule 502(a)
(integration), and Rule 502(d) (resales) are satisfied.
• Modified Form D checkbox to indicate whether the issuer is claiming an exemption
under Rule 506(c).

THE “NEW” JOBS ACT RULE 506
ARCHITECTURE
• Original Rule 506 is now Rule 506(b), unchanged, and subject to all Reg D
Rule 502 General Conditions, including the ban on general solicitation or
general advertising, for offers and sales to an unlimited number of persons
reasonably believed by the issuer to be accredited investors, and up to 35
financially or business sophisticated non-accredited investors for whom
substantial information requirements are satisfied.

THE “NEW” JOBS ACT RULE 506
ARCHITECTURE (CONT.)
• Rule 506(c), permitting unlimited offers via general solicitation or general
advertising, providing sales are made only to purchasers verified by the
issuer through reasonable steps to be accredited investors, but subject to all
other General Conditions in Reg D Rules 501, 502(a) and 502(d).
• Form D election (checkbox) by the issuer of one or the other for the
offering. If an issuer files a Form D with a checkmark in the Rule 506(c)
box and engages in general solicitation, it may not then change course and
claim reliance on Rule 506(b) for the same offering.

RULE 506(c) ISSUER “VERIFICATION” OF
ACCREDITED INVESTORS
The issuer shall take reasonable steps to verify that purchasers of securities sold are
accredited investors. Self-certification is not sufficient. The SEC has said generally,
that issuers should take an objective principle-based approach, considering the facts
and circumstances of each purchaser and transaction, including, among other things,
the following:
• The type of purchaser and the type of accredited investor that the purchaser
claims to be;
• The amount and type of information that the issuer has about the purchaser;
• The nature of the offering, including the manner in which the purchaser was
solicited to participate in the offering, and the terms of the offering, such as a
minimum investment amount.

OPTIONAL, NON-MANDATORY, NON-
EXCLUSIVE METHODS OF VERIFICATION
FOR NATURAL PERSONS INCLUDE:
• For net income verification: Review IRS documents (including W-2, 1099, K-
1, 1040) for most recent two years, together with a written certification from
the individual that he/she expects to continue to have enough income to
qualify as accredited.
• For net worth/assets: Review bank statements, brokerage statements and
other statements of securities holdings, certificates of deposit, tax assessments
and appraisal reports issued by independent third parties.
• For net worth/liabilities: Obtain a credit report.

THIRD PARTY VERIFICATION
Written confirmation from one of the following that they have verified
accredited investor status within the last 3 months:
• Registered broker-dealer
• Registered investment advisor
• Licensed attorney
• Duly registered CPA

THIRD-PARTY ACCREDITED INVESTOR
VERIFICATION SERVICES
An issuer is entitled to rely on a third party that has verified a person’s status as
an accredited investor, provided the issuer has a reasonable basis to rely on
such third-party verification. Third-party services:
1. Fee-for-verification for issuer identified individuals –service performs the
“reasonable steps” for the issuer.

THIRD-PARTY ACCREDITED INVESTOR
VERIFICATION SERVICES (CONT.)
2. Fee-for-verification of accredited status of individual for the individual
(“verify yourself”). Consider the pitch:
“Once an investor is verified, they earn a digital, SEC compliant
InvestReady™ certificate of accredited status that they can use anywhere
to instantly qualify for access to an investment.”
3. Issuer paid access to a pre-verified accredited investor third-party database.

VOLUNTARY SUBMISSION OF GENERAL
SOLICITATION MATERIALS USED IN RULE
506(c) OFFERINGS
Companies, funds, investors and others may voluntarily submit any written
general solicitation materials used in Rule 506(c) offerings to the SEC. The
materials submitted will not be made publicly available on the SEC website. The
SEC will not pass upon the adequacy or accuracy of any offering materials
submitted.
• Why (and why do it)?
• The SEC will use any submitted materials as an indication of how to craft
regulations going forward based on some 2013 rule proposals, although these
do not appear to be a high priority.
• No issuer incentive or reason to do it.

BAD ACTOR DISQUALIFICATIONS
Rule 506(d)
Although not a JOBS Act mandate, Dodd-Frank Act mandated “bad actor”
disqualifications for Rule 506 offerings were adopted by the SEC at the same
time as adopting JOBS Act Rule 506 revisions. No exemption under Rule 506
for a sale of securities is available if the issuer, any predecessor of the issuer,
any affiliated issuer, any director, executive officer, other officer participating in
the offering, general partner or managing member of the issuer, any beneficial
owner of 20% or more of the issuers outstanding voting equity securities, and a
variety of other persons associated with an offering has been convicted of a
crime, or been subject to various specified forms of judgments, final orders,
decrees or suspensions.

GENERAL SOLICITATION OR ADVERTISING
AND FACILITATION OF OFFERINGS: ON-LINE
PLATFORMS AND MECHANISMS
Securities Act §4(c)
With respect to securities offered and sold in compliance with Rule 506, any
person who:
(A) maintains a platform or mechanism that permits the offer, sale, purchase,
or negotiation of or with respect to securities, or permits general solicitation,
general advertisements, or similar or related activities by issuers of such
securities, whether online, in person, or through other means; or
(B) who co-invests in such securities; or
(C) provides “ancillary services” with respect to such securities
shall not be subject to registration as a broker-dealer under §15(a) of the Securities
Exchange Act of 1934.

“PLATFORM OR MECHANISM”
✓ Internet website
✓ Social media
✓ Third-party operated “matchmaking” sites
✓ Offering documents on-line
Constant Considerations
✓ Antifraud provisions, both federal and state, applicable in all cases
✓ Application of state Blue Sky Law broker-dealer registration or licensing
requirements.

SECTION 4(c) PLATFORM PITFALLS
The platform or “mechanism” exemption from broker-dealer registration shall
apply provided the operator and any person associated with the operator:
• Receives no compensation in connection with the purchase or sale of the
securities, i.e., no transaction-based compensation. However, the condition
is not limited to transaction-based compensation. SEC Staff interprets
“compensation” broadly, to include any direct or indirect economic benefit
to the operator or any of its associated persons.
• Has no possession of customer funds or securities in connection with the
purchase or sale of the securities; and
• Is not subject to a “statutory disqualification” as defined in §3(a)(39) of the
Securities Exchange Act of 1934.

ANCILLARY SERVICES
For purposes of §4(c), “ancillary services,” for which compensation may be
paid to a platform operator, means:
A. The provision of diligence services, in connection with the offer, sale,
purchase or negotiation of such security, so long as such services do not
include, for separate compensation, investment advice or
recommendations to issuers or investors; and
B. The provision of standardized documents to the issuers and investors, so
long as such person or entity does not negotiate the terms of the issuance
for and on behalf third parties and issuers are not required to use the
standardized documents as a condition of using the service.

POST-JOBS ACT ISSUER’S ELECTION
Rule 506(b), Rule 506(c)
• Private offering in reliance on Rule 506(b), unchanged from original Rule
506, and conditioned on not offering or selling securities through any form
of general solicitation. Online investor platforms and other means of
establishing pre-existing substantive relationships continue to be used
• Private offering in reliance on Rule 506(c) for unlimited offers using general
solicitation or advertising but sales only to verified accredited investors.
Reliance on Rule 506(c) forecloses the ability to sell to non-accredited
investors.

POST-JOBS ACT ISSUER’S ELECTION
(CONT.)
Securities Act §4(a)(2)
Private offering in reliance on Securities Act §4(a)(2) for “transactions by an
issuer not involving any public offering” outside of the Rule 506 safe harbor,
subject to all recognized limits on nature of offerees (SEC v. Ralston Purina
Co.), and prohibitions on communications amounting to public advertising or
solicitations.

REGULATION D CONSTANTS
1. Integration (Rule 502(a)). Offers and sales that are made more than six
months before the start of a Regulation D offering or are made more than
six months after completion of a Regulation D offering will not be
considered part of that Regulation D offering so long as during those six
month periods there are no offers or sales of securities by or for the issuer
that are of the same class or similar class as those offered or sold under
Regulation D, other than those offers or sales of securities under an
employee benefit plan.

REGULATION D CONSTANTS (CONT.)
2. Limitations On Resales (Rule 502(d)). Except as provided in Rule
504(b)(1), securities acquired in a transaction under Regulation D shall
have the status of securities acquired in a transaction under section 4(a)(2)
of the Act and cannot be resold without registration under the Act to an
exemption therefrom. The issuer shall exercise reasonable care to assure
that the purchasers of the securities are not underwriters within the
meaning of section 2(a)(11) of the Act.
© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™ 33

RULE 506(c) EXPERIENCE AND
PREFERENCES
• According to most economic analyses amounts reported as raised under
Rule 506(c) are small relative to the total amount capital raised pursuant to
Regulation D, suggesting most issuers are not yet seeking investors through
general solicitation and general advertising.
• Reticence to utilize Rule 506(c) general solicitation and advertising may be
due to regulatory uncertainty for standard advertising, vetting of accredited
investor status, and liability concerns.

RULE 506(c) EXPERIENCE AND
PREFERENCES (CONT.)
• Conclusion by many more seasoned issuers that they simply do not need
the Rule 506(c) alternative to traditional Rule 506(b) private placements.
• Some issuers may also fear the perception that use of general solicitation
and advertising signals the market that the company lacks a pre-existing
network of sophisticated investors and does not have favorable financing
options.

ENFORCEMENT
1. In re KCD Financial Inc., Admin. Proc. File No. 3-17512 Exchange Act
Rel. No. 803804 (Mar. 25, 2017) (Newspaper articles about the planned
launch of a real estate investment fund constituted general solicitation).
2. In re Eureeca Capital SPC, Admin. Proc. File No. 3-16265 Sec. Act Rel.
No. 9673 (Nov. 10, 2014) (Failure to take reasonable steps to verify
accredited investor status of purchasers).

ABOUT THE FACULTY
ROBERT RAPP
rnr@case.edu
Robert N. Rapp is Visiting Assistant Professor of Law at the Case Western Reserve University School of
Law, where he teaches Securities Regulation, Advanced Securities Regulation and Law, Theory and Practice
in Financial Markets. He is a Retired Partner (1975-2017) in the Securities and Capital Markets Practice of
Calfee, Halter & Griswold LLP Cleveland, Ohio. He was previously Distinguished Practitioner in Residence
at the Cornell Law School. Bob’s contributions to legal scholarship include numerous published articles and
papers addressing securities and financial market regulatory topics, many of which have been cited by state
and federal courts, including the United States Supreme Court. He is the author of Blue Sky Regulation
(LexisNexis/Matthew Bender), a definitive four-volume treatise on state securities regulation in the United
States. A graduate of Case Western Reserve University (B.A., 1969) and the Case Western Reserve
University School of Law (J.D., 1972), Bob also holds a Masters of Business Administration from the
Cleveland State University Ahuja College of Business (1989).

ABOUT THE FACULTY
JORDAN FISHFELD
jordan.fishfeld@cfxtrading.com
Jordan Fishfeld is the co-founder and CEO of CFX Markets, a secondary market platform that is changing the way people access alternative asset.
CFX Markets solves the broken, inefficient and painful process investors face when liquidating their minority alternative asset position. With it's
blockchain enabled platform, CFX Markets provides transfer, clearing and settlement services to make selling a private security easy and painless.
An early innovator in the crowdfunding space, Jordan is the elected Treasurer of the Crowdfunding Professional Association (CfPA), and
continues to advocate and educate on behalf of the crowdfunding industry. Jordan is a frequent speaker and writer on fintech and crowdfinance
topics, and is also the editor of the Crowdfinance section of Financial Poise, a leading continuing education and news publication.
Jordan was also named one of Chicago’s Jewish Community 36 under 36. He is also a board member of the young professional real estate
division of the Jewish United Fund and a Board Member of UpStart, a San Fransisco based accelerator focused on Jewish engagement and
innovation.
Prior to that, Jordan worked as a finance attorney for Katten Muchin Rosenman, LLP, where he assisted on more than $1 billion worth of
syndicated loan transactions. Jordan received his Bachelor of Arts in Political Science and his Bachelor of Science in Business Administration
from the University of Florida and his Masters of Business Administration and his Juris Doctor from the University of Miami, where he
graduated Magna Cum Laude.

ABOUT THE FACULTY
KRISTOFER K. SPREEN
kspreen@calfee.com
Kris is a Partner in the Securities and Capital Markets Practice of Calfee, Halter & Griswold LLP, Cleveland,
Ohio. He practices corporate and securities law, and advises both public and private companies in connection
with a broad range of matters, including initial public offerings, follow-on offerings, private offerings, Rule 144A
private offerings, as well as cash and stock mergers and acquisitions. He regularly represents investment banks in
connection with capital markets transactions, fairness opinions and other engagements. Kris also counsels start-
up companies and venture capital firms in venture capital financings.
Kris is a frequent speaker on securities law and corporate governance topics at regional and national continuing
legal education seminars, including panels hosted by TheCorporateCounsel.net, the RR Donnelly SEC Hot
Topics Institute, and KPMG LLP’s Audit Committee Institute. He also is a member of the Board of Advisors of
TheCorporateCounsel.net and has authored articles published in Deal Lawyers and The Tax Lawyer. He is a
graduate of the Georgetown Law Center (J.D., 1999) and the University of Washington (B.A., 1996).

The material in this presentation is for general educational purposes only. It has been prepared
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While Financial Poise is happy to make this PowerPoint freely available to all, the reader is
cautioned that it was created for use as part of a webinar that featured an extensive verbal discussion
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webinars can be purchased at www.financialpoise.com You may also receive offers for free webinars
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DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to
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Impact of the JOBS Act on Private Offerings (Series: The Job Act - A Retrospective & A Look Ahead 2018)

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