Please Be Careful When Raising Funds! SEC Cease and Desist Letter!

[Bryan Hancock]

One of my former business partners was working with a local guru that just got a cease and desist letter from the SEC.

Please be careful when you raise funds or solicit for funds openly. There are securities laws and people go to jail if things aren't done properly. Hopefully that won't be the case for what I am talking about, but you need to know the law and do things correctly!

[Don Konipol]

There have been so many blatant violations of the general soliciting provision of securities laws in the last 10 years that the SEC has no choice but to crack down on the most flagrant violators. Therefore, I feel a minnie review is in order.

Sale of securities in the U.S. requires registration with the Securities & Exchange Commission. Registration requires a prospectus reviewed by the SEC, compliance with all marketing regulations, and full disclosure. A nationwide offering may also require registration with individual states. Total costs for accounting and legal are $100,000 and up.

There are exemptions from registration. One of these exemptions is commonly known ad REG D. Without going into specifics, REG D compliance allows an offering without registration for various sized offerings if no general soclitation or advertising is used. Contacts must be with persons already known to the issuer. A maximim of 35 non accredited investors, and 99 accredited investors (theoretically unlimited accredited investors but once at 99 other regulations kick in) are allowed. Individual state laws may apply, SEC oversite applies.

Another exemption is an intrastate (one state only) offering. The offering must comply with that state's securities laws, many of which mimic Federal regulations to some extent. In Texas an intrastate offering not SEC registered must be registered with the Texas Securities Board unless exempt. Legal costs for registration in Texas only are about $15-20,000.00. Exemption is for offerings not using general solicitation with 35 or fewer non accredtied investors or unlimited number of accredited investors. No prospectus or PPM is required, however legal liability for less than full disclosure will have no defense if not in a disclosure document.

This is a very brief overview, volumes have been written on each aspect. Case law has evolved in the last 77 years.