RD188 - Equity Crowdfunding in Virginia – July 1, 2016

Executive Summary:
Chapters 400 and 354 of the 2015 Virginia Acts of Assembly (*1) direct that,

“[T]he State Corporation Commission ("Commission") shall report by July 1, 2016, and each year thereafter until 2020, to the Chairmen of the House and Senate Commerce and Labor Committees on the implementation of this act, including (i) any updates on federal action, (ii) the number of filings in the Commonwealth made pursuant to this act, (iii) the means, median, and total values related to money raised under offerings made pursuant to this act, and (iv) any recommendation for revisions to this act.”

The Commission is pleased to submit its initial report to the Chairmen of the House and Senate Commerce and Labor Committees on the implementation of the crowdfunding legislation.

Chapters 400 and 354 authorize the Commission to adopt, by rule or order, an exemption for certain offerings of securities by small and startup companies from the registration provisions of the Virginia Securities Act ("Act"). (*2) These small offerings, known as equity "crowdfunding," are intended to cover the offer and sale of securities to a broad base of persons who invest small amounts of money. Effective July 31, 2015, the Commission, by rule, adopted the Intrastate Crowdfunding Exemption ("ICE") that provides the exemption and sets forth certain conditions and filing requirements to be met by the offerors and purchasers of the security. ICE is closely aligned with the federal intrastate exemption so that the state exempted offering also will be exempt from federal securities registration requirements. As of the date of this report, the Commission has not received any notice filings under ICE. With respect to crowdfunding regulations on the federal level, the Securities and Exchange Commission's ("SEC") Regulation Crowdfunding exemption went into effect on May 16, 2016. This federal rule permits companies to use crowdfunding offerings to raise money from investors residing in any state. The SEC also has proposed rule changes to make it easier for a company to qualify for its Rule 147 (*3) intrastate offering exemption. If adopted, these changes will increase the number of companies eligible to use Virginia ICE because ICE is premised on compliance with Federal Rule 147. The Commission has no recommended changes to ICE at this time due to its limited history and the undetermined impacts of the proposed federal rule amendments.

(*1) Codified in Va. Code § 13.1-514.
(*2) Va. Code § 13.1-501 et seq.
(*3) Rule 147 is a federal rule that permits small companies to raise a limited amount of funds without actually registering securities with the SEC, thereby not incurring expensive fees associated with registering such securities with the SEC. This rule applies to Section 3 (a) 11 of the Securities Act of 1933, or intrastate offering exemptions. 17C.F.R. §230 147(2013).