This is the case even more so for online investment platforms not registered as broker-dealers or funding portals. These platforms face intense scrutiny from regulators. Compliance requires a deep and nuanced understanding of the securities laws to ensure that platform is not engaged in unregistered broker-dealer activity.
Since the inception of the internet, the Securities and Exchange Commission (SEC) has been providing clarifying guidance as to what activities constitute broker-dealer activities under the Securities Exchange Act of 1934, as amended ( the "Exchange Act"), and how those principles are applied to Internet based investment platforms. Under the Exchange Act, a "broker" is defined as any person that is "engaged in the business of effecting transactions in securities for the account of others." With respect to the meaning of "effecting transactions in securities," the SEC has interpreted it to have occurred when a person participates in such transactions 'in key points of the chain of distribution.' A person "engaged in the business of" may be established if the person receives transaction-based compensation and holds itself out "as a broker, as executing trades, or as assisting others in completing securities transactions." While transaction based compensation is deemed the hallmark of broker-dealer activity, it is but one element in a complex facts and circumstances analysis.
Matchmaking platforms connect potential investors with companies that are considering or actively raising capital. These platforms may be public facing - with unrestricted access for viewing, or they may exist behind protective walls, requiring users to register before being granted access to the contents of the site. Key considerations for matchmaking platforms include, but are not limited to:
Before the Jumpstart Our Business Startups Act (JOBS Act), the SEC staff issued a series of no-action letter to matchmaking sites. The conditions established in these letters created a framework wherein matchmaking sites could legally operate, provided that the scope of their activities were extremely limited, particularly with respect to their involvement in any aspect of the capital raise that touched the securities.
Section 201 of the JOBS Act created an exemption from broker-dealer registration, in Title II of the JOBS Act, for matchmaking platforms facilitating Regulation D, Rule 506 offerings.
Section 201(c) of the JOBS Act adds new paragraph (b) to Section 4 of the Securities Act. Section 4(b) of the Securities Act states that:
(1) With respect to securities offered and sold in compliance with Rule 506 of Regulation D under [the Securities Act], no person who meets the conditions set forth in paragraph (2) shall be subject to registration as a broker or dealer pursuant to section 15(a)(1) of this title, solely because—
(2) The exemption provided in paragraph (1) shall apply to any person described in such paragraph if—
(3) For the purposes of this subsection, the term ‘ancillary services’ means—
On February 5, 2013, the SEC provided additional guidance relating to matchmaking sites via its Frequently Asked Questions ("FAQs").
Subsequent to the promulgation of the JOBS Act, the SEC granted a series of no-action letters for online investment platforms seeking relief from registration of broker-dealers. In the two hallmark letters, FundersClub Inc. and FundersClub Management LLC and the AngelList LLC, the SEC indicated that the subject matchmaking websites would be exempt from registration as a broker-dealer, subject to the respective requirements outlined in their respective letters being adhered to, including the non-receipt of transaction-based compensation.
We have worked with Robin for almost a year now and it has been an incredible experience. Robin thinks outside the box, is very professional and extremely pleasant to work with. She is an expert in Regulation Crowdfunding and we are very satisfied with our choice to retain her. I would recommend Robin to any small start up. Robin is extremely qualified, reliable, and very cool!
Patricia Hertling, Co-Founder
Robin and her team were extremely knowledgeable about the evolving legal requirements around crowdfunding. The entire team was responsive and professional throughout our campaign. The team answers questions in a thorough and efficient manner which made it a cost-effective relationship for our small business.
Carlos Ventura, CEO
FEAST & FETTLE
Robin has the insight and compassion that is needed for any startup working to raise capital or manage the legal aspects of their business. She is not just an attorney but also a business women who will elegantly guide owners or decision makers to make the best possible legal decisions. She will actively understand your business, pursue various options and connect with outside resources in-order to help her client fully understand all their legal option. She is passionately focused on making sure her clients make the best possible decisions that will positively impact their business for both the short & long term.
Sandra Gault, Founder and CEO
We had the pleasure of working with Robin and her team to conduct our legal review for our crowdfunding campaign with Indiegogo and MicroVentures. We had been through the Reg D process before, but Reg CF was entirely new to us. Robin and her team were great in explaining the process and meeting our rushed deadlines to get everything ready. I highly recommend that anyone considering an equity crowdfunding campaign use Robin as their legal team.
Sunny Washington, CEO
The process of raising capital for any startup or early stage company is fraught with complexity, challenges and details that are often largely outside of the regular day-to-day activities of the organization. In addition to this reality, the process can be demoralizing, time consuming and very expensive. In contrast, our experience with the Reg CF process, while requiring real work and preparation, has been cost effective and efficient. A huge part of that was the feedback and guidance of Robin Sosnow, Esq and her staff. Robin's legal review was detail-oriented and thorough while still fast. The back-and-forth surrounding our questions and the final review process seamless as well. I would not hesitate to recommend or hire Robin in the future.
Brendan Burns, CEO
STEPSTONE ARTS RESOURCES
Equity Crowdfunding is an exciting new frontier for entrepreneurs, but can be confusing and frustrating to navigate, even with an experienced partner. Robin and her team are experts in the space, and were critical partners for us in our journey. They were responsive when we needed them and thorough in their feedback, ensuring to the last detail that no mistakes no mistakes were made. If you’re thinking of embarking on an equity crowdfunding campaign, reach out to Robin sooner rather than later!
Jordan Schwartz, COO & Co-Founder
We worked with Robin and her team for our equity crowdfunding raise on Microventures.com. As a first-time crowdfunder, she helped me navigate the process and made sure all of my concerns were addressed. Robin went above and beyond my expectations -- especially when she hired our company and helped us promote our crowdfunding campaign to her audience! The best JOBS Act firm in the biz!
Nicholas China, CEO
Robin Sosnow was our attorney on our crowdfunding that we did with IndieGoGo/Microventures. We were under the gun to get things going quickly and I put the pressure on. Robin and her team were terrific. They explained an area that was new to me and got all the paperwork done in record time. I'd highly recommend them for this kind of work, they are the experts.
Michael Hoffman, CEO
We had the opportunity to work with Robin Sosnow, PLCC during our recent crowdfunding venture. Robin was very professional and explained the process in detail. Any time we had any questions Robin was available and prompt on her responses. Going through a crowdfunding process is very time consuming and requires a lot of documentation. With all the efforts that Robin put in place it made our job easier to obtain all the documentation and complete the process in a timely manner.
Christinia Marc, Administrative Manager
My company and I worked with Robin and her team on a rather complex equity crowdfunding launch. Robin clearly knows the JOBS act inside and out - and she and her team always went the extra mile to make sure everything was buttoned-up properly. She's an excellent attorney and I'll definitely be working with her again.
Paul Siedarski, CEO and Head of Product
Sosnow & Associates has been integral to us launching our crowdfunding platform, not just with their expertise but with meeting quick turnarounds for prompt regulatory responses. Couldn’t do it without you. Thank you!
Luiggi Pera, Miventure Cofounder & CRO
Robin Sosnow and Manuel Pesendorfer are 100% plugged into the new SEC rules for Regulation Crowdfunding and continue to advise our funding portal to maintain compliance and support our business. They are super-connected to top influencers in the equity crowdfunding ecosystem and always ready to make introductions. We highly recommend Sosnow & Associates, and they are also nice people to work with.
Bruce Virga, CEO