So, you patiently waited and you didn’t tell anybody about your plans until you filed. NOW you can go shout about it from the rooftops, right? Not so fast, the Securities and Exchange Commission (“SEC”) still wants you to keep things tight-lipped.
There is, however, one small exception. You can communicate the terms of the offering on a “tombstone ad”.
Silent as the Grave? Not Quite.
A tombstone ad is just as it sounds: a written ad containing the bare facts about the potential investment. Such ads may only include a statement that the company is conducting an equity crowdfunding offering, the name of the portal through which such opportunity is taking place, the terms of the investment and very basic information about the identity and location of the company. This is a standalone ad: In other words, it can’t be coupled with any other information about the business or its services. This means that a company should be very careful about the medium it chooses to communicate a tombstone ad. A blast e-mail may be fine, but putting it on your website is likely a bad idea.
The Fine Line Between Compliance and a Violation
The harsh restrictions on what you can include in tombstone ads make them somewhat unconventional when conducting a traditional securities offering. The SEC will consider any communication that even hints at or implies the terms of the investment to be a (likely noncompliant) tombstone ad. Below are some no-nos to avoid so you don’t unintentionally communicate the terms of your offering:
- The Devil in the Details. Be careful not to accidentally hint at the terms of your equity crowdfunding campaign. For example, mentioning that there are “hundreds of opportunities available to take part in Company X’s success” could be hinting at how many ownership interests you are selling.
- Linking to Other Websites/Articles. Be careful which websites and articles you link to. If the link contains information about the terms of your offering, then your original email, social media post or website containing the link could be considered a tombstone ad. Note, this could put you in trouble even if your original communication does not relate to your equity crowdfunding campaign. For instance, let’s you post a link on your company website to an article that casts your business in a positive light, and that article mentions that your firm “is conducting a crowdfunding campaign until X date.” By linking to the article, your website is indirectly communicating a term of the offering (the closing date), and may be considered a tombstone ad.
- Interviews and Media Coverage. This is one of the thornier areas of equity crowdfunding regulation. Any interview that the business “participates in” makes the resulting article a communication of the company. This means that even if you did not mention the terms of your offering during an interview with a journalist, your business will still be responsible if the writer later adds in specific terms of the investment when writing their piece. Such a story would likely be deemed a tombstone ad in the eyes of the SEC.
As you can see, equity crowdfunding is a potentially powerful tool raising money for your business. You may want to consult with an experienced business attorney to help you navigate the SEC’s strict regulations, guide you through the equity crowdfunding process and avoid problems due to noncompliance.
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