Legal Expert Warns Of SEC’s ‘Touting’ Prosecutions
Doug Ellenoff, Partner at Ellenoff Grossman & Schole, is a leading legal expert in the burgeoning field of investment crowdfunding. He recently sent an alert to clients warning them to be guard against “touting” violations that arise when compensation arrangements aren’t disclosed that the SEC now intends to pursue.
The alert read, in part, “The SEC appears to be preparing to target investment platforms that post issuers’ securities without explicitly disclosing the compensation received from such issuers.”
“We are concerned that a broad interpretation of Section 17(b) could be imposed on all online portals involved in the sale of securities, not limited to “posting sites”, but broker-dealer, investment advisory and investment management models as well,” the alert continued.
The alert concluded with this specific recommendation:
Recommended action: All platforms (regardless of whether you are posting only, have a broker-dealer relationship, or create special purpose vehicles) should include either a section in the terms of use or create a “Disclaimer” page for a description of platform compensation which is featured via a link within the offering materials. Further, any supplemental communications (e.g., email, circular or other publication) with potential investors regarding the sale of securities on behalf of issuers should include a similar link to the compensation disclosure. It is not sufficient to have a general link on the website footer alongside the link to terms of use or to provide generic disclosure. Operators of investment platforms should also avoiding referring to themselves as “independent” of issuers if they receive posting fees, since doing so may misrepresent the relationship between the two parties.
On Thursday, December 11, 2014 at 1:00 PM Eastern, Doug will join me to discuss the risk of prosecution for touting and the strategies for avoiding a call from the SEC. Tune in here then to watch the interview live.
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More about Ellenoff Grossman & Schole LLP:
Ellenoff Grossman & Schole LLP is a New York City-based law firm comprised of over 65 professionals, offering its clients legal services in a broad range of business related matters. Founded in 1992, the Firm specializes in many areas of commercial law: Corporate, Securities, Private Investment Funds, Broker-Dealer Regulation, Real Estate, Labor and Employment, Intellectual Property, Litigation, Arbitration, Tax and Estate Planning.
Douglas Ellenoff
Doug’s bio:
Ellenoff Grossman & Schole LLP is the leading law firm serving the security crowdfunding industry. Recognized as a thought leader and expert on the nuanced legalities of the JOBS Act, Douglas S. Ellenoff has been a key representative and advocate for the industry and has actively engaged with the SEC to discuss many aspects of the proposed new law. Additionally, EG&S is working with securities professionals internationally to assist them with shaping smart legislation to foster investment crowdfunding in their jurisdictions. EG&S is actively engaged with clients in the crowdfunding industry, including funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs.
Ellenoff Grossman & Schole was a sponsor of GoodCrowd14, the Social Enterprise and Crowdfunding Conference.
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