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Transcript of Our Second Crowdfunding Live Chat

Transcript of Our Second Crowdfunding Live Chat Crowdfunding Live Chat – What’s Legal and When
April 16, 2012
(The highlights of our first live chat are also available. Thanks to Jeff Bullock, founder of Launchpad Investors, for his help with this transcript.) 

Discussion Leader:
Carl Esposti, Founder of

Other Participants:

Darin Gordon, Entrepreneur
Sean Peppard with Ulmer & Berne
Kiran Lingam from
David Marlett, Executive Director of the National Crowdfunding Association
Peter Einstein, Founder of
Eric Mack, Editor at
Kevin Grell, CAPS Program Director;
Sara Hanks, CrowdCheck
Freeman White, CEO of, and Founding Member of CFIRA
Candace Klein Founder and CEO of SoMoLend
Rafael Chaves Lopes from Brazil
George Morris
Arthur Hardy-Doubleday, Conception Fund
Charles Davidson, Vice President, Incorporating Services
Dara Albright from NowStreet Journal and The SoHo Loft Capital Creation Events
Ruth E. Hedges, CEO of Funding Roadmap, Founding member of CFIRA and CAPs
Kevin Williams, Attorney
Christine Landon, CEO of WebFinancial
Michelle Mercier, iPeopleFINANCE, Dir of Comm's

The Discussion

Carl Esposti: Welcome to today’s Live Chat – we have a number of members with us today from CFIRA’s leadership group. CFIRA is the organization created to guide the development of a framework for self-regulation for US equity-based crowdfunding. We are going to focus today’s chat on the legal issues around equity-based crowdfunding in the US. The first topic we are going to tackle is “what’s legal and when” – in particular - what permitted after 90 days and after 120 days.

Carl Esposti: A couple of quick requests before we begin.

Carl Esposti: #1 please introduce yourselves when you enter the chat

Carl Esposti: #2 please prefix any questions with @NAME

Carl Esposti: Also – to enter chat comments please register on

Darin Gordon: Hello. I'm Darin Gordon, an aspiring entrepreneur who has worked in financial services for 9 years and has hands on exp working w/regs

Carl Esposti: Hello Darin

Sean Peppard: Sean Peppard with Ulmer & Berne is on

Kiran Lingam: Hello, this is Kiran Lingam from

CrowdFundUs: David Marlett, Executive Director of the National Crowdfunding Association

EcoEinstein: Hi, I'm Peter Einstein, I'm launching CrowdFunding4Good, a socially-responsible platform

Carl Esposti: Hi Kiran / Hi EcoEinstein

Eric Mack: Hi all, Eric Mack, Editor here at

Arthur Hardy-Doubleday: Arthur Doubleday from Conception Fund

Charles Davidson: Hi I am Charles Davidson, Vice President Incorporating Services. A national provider of entity formation and compliance services

Kevin Berg Grell: Good morning everyone. Kevin Grell, CAPS Program Director;

Freeman White: Hello I'm Freeman White, CEO of, and Founding Member of CFIRA. Ask away!

mimifla: Michelle Mercier, iPeopleFINANCE, Dir of Comm's here

EarlyShares: Hello everyone

Carl Esposti: Hi Freeman / Hi EarlyShares

Candace Klein: Hello all, Candace Klein from SoMoLend

Carl Esposti: Hi Candace

thenextstreet: Hi This is Dara Albright from NowStreet Journal and The SoHo Loft Capital Creation Events

Ruth E. Hedges: Hi CEO of Fundingroadmap and I'm a Founding member of CFIRA and CAPs

Kevin Williams: Hello, Kevin Williams, atty in private practice

Rafael Chaves Lopes: Hello. I'm Rafael Lopes, I am very interested in the new crowdfunding legislation in order that I can bring a similar model to Brasil

Sara Hanks: Sara Hanks from CrowdCheck. Carl, is CFIRA going to send SEC pre-rulemaking comments?

Carl Esposti: @Sara - yes - we are collecting those comments now

Carl Esposti: Let me ask Sean Peppard, a Securities Attorney with Ulmer and Berne the first question.

Carl Esposti: @Sean – What’s permitted after the 90 and 120 milestones are reached?

Sean Peppard: Well, after 90 days, subject to SEC rulemaking, general solicitations/advertising will be permitted in Regulation D offerings. To be clear, Regulation D is the safe harbor for ‘offerings not involving a public offering,' and is different from the crowdfunding. The rules around crowdfunding are subject to a 270 day rulemaking process

George Morris: Will a company need an attorney or broker to use crowd funding?

Candace Klein: @George, yes, fundraising companies will be required to use a 'crowdfunding platform'

Sean Peppard: But, they may or may not need to hire an attorney.

Carl Esposti: @George - I have your question - let's address it after we discuss the 90/120 day question

George Morris: What is the dollar limit now or after July for a CrowdFunding money raise?

Candace Klein: And platforms will need to be registered, either as a platform or as a broker-dealer

Sean Peppard: Crowdfunding exemption will permit up to $1,000,000 annually. But, you can use other exemptions in that period such as Reg D offerings

EcoEinstein: Hi Dara, Looking forward to seeing you on Wednesday

Charles Davidson: Hi Dara

Candace Klein: To clarify, Reg D offerings are separate and distinct from crowdfunding offerings. Sean, can you explain?

Sean Peppard: Carl, to get back to your original question sure, there are several exemptions to the registration requirements of the Securities Exchange Act of 1933. One is offerings not involving a public offering - which most companies use and refer to as 'Regulation D offerings.' The JOBS Act created a new exemption - crowdfunding. They are distinct - have different rules that must be complied with

Darin Gordon: Right now we see self-appointed groups trying to take the lead as the SRO authority for crowdfunding. Who decides on authority privileges?

Arthur Hardy-Doubleday: Thank you Darin for asking that question...I would also like to know that

Candace Klein: @Darin and Arthur, a group of industry participants is coming together, but not exclusively. You can sign up and express your interest on this site. Carl will provide the link.

EarlyShares: @Darin the SEC

Carl Esposti: @Darin @ Arthur- there are two distinct needs - #1 we organize as an industry to develop a workable self-regulatory framework #2 - we organize ourselves in order to advocate for the industry and to ensure we have a common and strong voice. CFIRA is organizing to develop the framework - other parties I believe are not attempting to do this.

CrowdFundUs: Yes Carl, the National Crowdfunding Association is not organized to develop the SRO framework. Only CIFRA is.

Carl Esposti: @CrowdFundUs - thanks for your confirmation - there are separate and distinct needs - both must be addressed

EarlyShares: Carl is correct CFIRA is working towards being an SRO, and the NLCFA is not.

Sara Hanks: Sean, do you read sec 302 a as reducing the million dollar limit if you use, eg, Reg D?

Sean Peppard: No, the act specifically states that you can raise money under different exemptions

Rafael Chaves Lopes: So crowdfunding does not apply to Regulation D?

EarlyShares: @rafael yes, two different things

Sean Peppard: Yes, Rafael, crowdfunding does not apply to Regulation D. You may see sites offer both services - Reg D offerings and crowdfunding offering. But different rules apply to each.

Kiran Lingam: Reg D offerings (after 90 days) to accredited investors allow general solicitation and have no maximum. Crowdfunding offerings (after 270 days) to non accredited will not allow general solicitation and will have a $1M max.

Sean Peppard: Kiran, that is correct on all accounts

Rafael Chaves Lopes: ok. thanks

Candace Klein: But after July 4, 2012 (90 days) platforms that want to facilitate these Reg D offerings are not permitted to charge a transaction fee. After January, 2013 (crowdfunding deadline), platforms will be able to facilitate crowdfunding offerings and charge a transaction fee

Sean Peppard: And yes Candace, the fee issue is interesting. Sites can charge diligence or form document fees, but not transaction based fees

Charles Davidson: If no Transaction fee then how will the platforms be compensated?

Akande SHITTU: My name is Akande SHITTU. crowdfunding platforms will not be able to crowfund on their own platforms? how will they be able to do it?

CrowdFundUs: Hi all... I look forward to meeting many of you in NY Wed, and supporting CFIRA's work toward an SRO.

Kevin Williams: @Kiran where is the regulation that crowdfunding will not be allowed for general solicitation? That's the whole purpose of crowdfunding!

Kiran Lingam: Accredited Reg D Platforms cannot take compensation; Crowdfunding platforms can take compensation

Kiran Lingam: @Kevin: '‘‘(2) not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker;'

Arthur Hardy-Doubleday: @Sean even after Jan 2013?

Candace Klein: Platforms can charge for due diligence or offering of forms from July to January, but to be clear, you cannot charge a transaction fee until January 2013

Rafael Chaves Lopes: @Candance Crowdfunding websites will only be permitted to charge fees in Jan/2013? Is that it?

Arthur Hardy-Doubleday: no transaction fee?

Candace Klein: @Rafael, correct, we cannot charge transaction fees until the close of the 270 day rulemaking period....January, 2013

Arthur Hardy-Doubleday: ok thank you Candace

Sean Peppard: Yes, the Reg D rules and crowdfunding rules are completely different. No transaction fees in Reg D offerings if general solicitation is used. More important, you can't use the crowdfunding exemption AT ALL, unless interim rules are passed

Rafael Chaves Lopes: Ok, thank you.

George Morris: I am working for a 1940 Act Business Development Company ('BDC'). Does this fit with Crowd Funding as capital for the next growth step?

Ruth E. Hedges: They can charge hosting fees

Sean Peppard: @Ruth, we will see where this turns out, but the law says 'receives no compensation' and the only explicit exception is for ancillary services, which are defined as due diligence services or form documents. Hosting is not clear

Darin Gordon: Is anyone aware of the level of broker/dealer interest in this space and may comment?

Christine Landon: Christine Landon, CEO of WebFinancial. I am registering at some point as a broker dealer.

thenextstreet: @Darin - I think we are starting to see more interest from smaller BDs. They are mostly trying to wrap their arms... around it & understand how they can participate

Candace Klein: Many broker dealers have begun to express an interest in partnering with platforms or developing their own, but none have officially spoken

George Morris: As a Broker Dealer for smaller companies, there is interest if the Company can validate growth potential using the CrowdFunding.

CrowdFundUs: we are seeing tremendous interest from VCs and smaller BDs and Angels.

George Morris: As a small BD, I want to work with a Crowdfunding group.

Sean Peppard: I do think you will see partnering between B/Ds and crowdfunding sites

CrowdFundUs: Yep, many BDs and VCs are looking to work with CFs

George Morris: I want to partner with crowdfunding. I am not out to invent a wheel that is there.

Maurice Lopes: @George Morris please email me your contact info love to talk

Candace Klein: George, please email me your info to

George Morris: Finra BDs can get funding. I am personally interested in facilitating access to the BD community and more interested in help future growth

thenextstreet: I wouldn't be surprised to see some BDs looking to partner with existing CF Platforms

Charles Davidson: what are the requirements for those seeking funding, do they need to be a registered entity? Will they need DHS background checks?

Rafael Chaves Lopes: @Candace - But the platforms will be allowed to make the offerings?

Freeman White: @Rafael, no. Offerings must wait till 2013 under the crowdfunding exemption

Candace Klein: @Rafael, platforms may choose to make the Reg D offerings after July, 2012, but will have to be clear that these are Reg D offerings. Sean, please clarify my point

Sean Peppard: The law is clear - it says 'no compensation' for hosting Reg D offerings, with VERY limited exceptions

EcoEinstein: Will portals be able to take Kickstarter-style donations prior to Jan and then convert donors to investors?

Freeman White: @Einstein, no.

Maurice Lopes: @Einstein, Nope

Sean Peppard: @Eco, the donations solves in some ways the broker/dealer issue, but not the registration issue. Since crowdfunding won't be an effective exemption, I don't see how it works.

John Fischer: Caught in traffic so late in signing in. The new Crowdfunding rules ONLY apply to platforms seeking to offer equity right?

Maurice Lopes: @john, equity or debt

Kiran Lingam: @John To platforms seeking to offer SECURITIES

Candace Klein: @John, no. The JOBS Act applies to the sale of all securities, including debt securities and equity

Sean Peppard: John, no, crowdfunding applies generically to the sale of securities, notes and other debts are generally considered securities

John Fischer: Thx Maurice. Existing players offering gifts, or potential other creative things in exchange fall outside of this then

Maurice Lopes: @John, there are no regulatory oversight on donation based crowdfunding as long as it’s not tied to future equity!

Candace Klein: @John. Yes

John Fischer: Thanks much Candace. And Maurice. Just want to be sure my understanding of still true.

EcoEinstein: But CF platforms WILL be able to take donations prior to jan and then shift their model to equity-based offerings, correct?

Sara Hanks: @ecoeinstein, just don't advertise that donation model will shift to equity!

Freeman White: @John, Yes. Donation and pre-sale based a separate and still legal and will still continue to persist.

Sean Peppard: Maurice - agreed - need to be very careful with how these are set up

George Morris: Even true charitable donations are watched by California Regulators. Licenses and fees!!

EcoEinstein: Sara, why can't I advertise that we'll be shifting to equity?

Sara Hanks: @eco: because SEC regards a lot of stuff as being 'offers'

Sean Peppard: @Sara - very good point

Arthur Hardy-Doubleday: @ Sara agreed

Freeman White: @Einstein, the model can shift on the platform, but legacy transactions cannot.

Maurice Lopes: pre-sale of 'goods/product' not equity (securities)

John Fischer: Yes, Maurice. What about phantom forms of stock? Where it might be some contractual right to receive something of value?

Christine Landon: @sara....Not only don't advertise, but explicitly state that they will NOT. It is a natural assumption.

Sara Hanks: @Christine, yes, have to be very carefully worded

EcoEinstein: Can we offer donors the option of shifting to investors in the same company?

Maurice Lopes: @ecoEinstien, no problem start picking you jail cell :-)

Freeman White: @Einstein, No. That would be illegal until 2013

Sean Peppard: No, phantom forms of stock are securities and regulated


Candace Klein: Please be very careful what you decide to do before January, 2013. We don't want to give the SEC examples of why to over-regulate

George Morris: Yes Candace: I had discussions about it at last trade show email me:

EcoEinstein: Gotchya

Sara Hanks: @candace. yes! and there are people out there already causing problems!

Freeman White: @Einstein, even after 1/1/2013 that wouldn't be the right way to do it. The offering must be offered as securities in the first place.

EcoEinstein: Thanks, Freeman. Any lawyers here who want to connect afterwards please contact me at I don't wanna go to jail.

CrowdFundUs: So true Candace. We are already in discussions with the SEC, and are concerned about that.

Arthur Hardy-Doubleday: @ Sara can you give an example?

Maurice Lopes: @sara can you elaborate on the problems comment? Interesting.

Sara Hanks: @ arthur, not in public, but google..

Arthur Hardy-Doubleday: @ sara can you give me a search term

Sara Hanks: @ arthur email me at

Freeman White: @Maurice, the gist is that there is concern that people are jumping the gun and may try to offer stock under the crowdfunding exemption before 1/1/2013.

Sean Peppard: and we are seeing general solicitation Reg D offerings already. Big problem

Maurice Lopes: @Eco contact me i have a team of attorneys at my office :-)

EcoEinstein: Thanx, maurice Looking for possible legal partners in CrowdFunding4Good

Christine Landon: @sean, that's what I mean...

Candace Klein: We have received offerings through LinkedIn, Facebook, Twitter already. It is important to spread this important caveat.

Sara Hanks: @sean. quite. and the SEC tends to get STRICTER before rules are loosened, amirite?

Sean Peppard: Yes, I would expect a strict approach up front. Loosing from there if the instances of fraud are not high

Maurice Lopes: is there anyone here who is not going to be in NY on Thursday?

Rafael Chaves Lopes: @Maurice - I'm not

Ruth E. Hedges: i will But i will be on the panel for the TSL'S CAPITAL REFORMATION & CROWDFUNDING CONFERENCE - SAN FRANCISCO On May 10th

Arthur Hardy-Doubleday: I will not

Charles Davidson: i will not

EcoEinstein: I will only be there on Wednesday night at SohoLoft.

Maurice Lopes: @Eco me too look for me.

John Fischer: I won't. I can't be in NY TH.

George Morris: I cannot go to New York

Darin Gordon: outrageous pricing for an event on an industry that has no experts yet

Eric Mack: Could folks that will be in Manhattan on Wednesday please contact me at

Arthur Hardy-Doubleday: I am confused if CAPS and Crowdfund Intermediary Regulatory Association are working together?

Ruth E. Hedges: We really need this clarified as many CF sites in development that have contacted me are building subscriptions into their model

Carl Esposti: @Arthur - CAPS is a program not an organization (as I am sure you know) - we will work with parties within the industry to help the adoption

Arthur Hardy-Doubleday: ok so CAPS is not the SRO?

Candace Klein: We are a CAPS accredited portal.

Carl Esposti: @Arthur - each entity working to establish groups to move the organization forward have publicly supported CAPS

Carl Esposti: This is the link to CAPS - the sign-up link is in the right column below the CFIRA information

Carl Esposti: This is the direct link to the sign-up form

Freeman White: @Ruth, did you see your question answered, or do you have further questions?

Ruth E. Hedges: Freeman no i did not.

Freeman White: @Ruth, is your main question regarding when the subscription or fees can be legally charged on the crowdfunding transactions?

Kevin Williams: @Kiran so businesses that want to raise funds have to rely on the portals or brokers to advertise or seek investments?

Kiran Lingam: @Kevin SEC will clarify, but it seems that will have to rely on portals + notices directing people to portals

Candace Klein: @ Kiran, correct

Kevin Williams: @Sean do you anticipate interim rules being passed before the 270 day rule making period?

Sean Peppard: I do not. I do not see enough time, there are a lot of rules and SEC seems to be jumping immediately to getting public comment on what will be final rules

Darin Gordon: All- next steps I see are to build an industry-agreed on set of comments for the SEC. With that given, does it make sense to create a wiki and start fleshing out a 'straw man'

Candace Klein: It is important to note that the SEC has opened its first public comment period as of last Thursday. If you have thoughts about initial suggestions for the SEC, please do let us know. You can sign up to become engaged on this site. Carl, please post the link to the sign up

Darin Gordon: @Candace: not sure that will work.. self-appointed 'leaders'

Candace Klein: No one is self-appointing. The industry is simply coming together to try to speak with a unified voice. All are welcome

EarlyShares: To make comments

Freeman White: to comment to the SEC

Kevin Berg Grell: ... follow up; CFIRA reg form available here:

Rafael Chaves Lopes: How will CFIRA, the SEC or CAPS accredited portals maintain control over the issuers financial reports?

Kevin Berg Grell: @Rafael; thanks for your question. This is one of the core issues that we need to address. Please sign up for the working groups so that we can lift this challenge!

Charles Davidson: @Rafael, this ties into my earlier question, what will be the requirements for investors and seekers re: entity formation/registration and b

Candace Klein: There are a number of events worth attending, next Wed. in NYC, May 10th in SF and in Palo Alto (Dara, when?)

Ruth E. Hedges: may 9th

Ruth E. Hedges: may 9th in PA

George Morris: Who is sponsoring SF in may?

Rafael Chaves Lopes: thanks, Charles

Kevin Berg Grell: link:

Candace Klein: May 9, Palo Alto, May 10, San Fransisco

Ruth E. Hedges:

mimifla: Thanks Ruth, Candace

CrowdFundUs: And the NLCFA will be soon announcing the National Crowdfunding Conference for August, in Austin.

Ruth E. Hedges: Hope to meet you there mimifla

thenextstreet: upcoming TSL event schedule:

Arthur Hardy-Doubleday: @ crowdfundus Austin is August? Hot!

mimifla: You too Ruth! Thanks, Dara!

Maurice Lopes: im goin to the TSL event anyone feel free to look for me

Sara Hanks: Austin has beers and airconditioning

Candace Klein: Please ask any additional questions today, as we will continue these Monday chats as more information is disseminated

Christine Landon: @Candace. Which brings me to my question. On July 4, we can solicit under Reg D to accredited investors, but I thought it was only to those we already knew?

Maurice Lopes: i have a question to all does anyone know any additional information about having interest in companies you crowd fund (after the offering, not prior), i was told th

Sean Peppard: @Maurice: the law prohibits directors, officers of the intermediary from owning an interest. I was surprised that it did not apply to the intermediary itself

Candace Klein: We did clarify this today. Platforms can invest in fundraising companies, but individual directors, officers and staff may not

Arthur Hardy-Doubleday: @ candace who should a platform under development seek validation from? The SRO and if so what is the name of the SRO

Freeman White: @Arthur, the name of the burgeoning crowdfuning SRO is That said, we are not yet able to offer registration.

Arthur Hardy-Doubleday: thank you

Ruth E. Hedges: I have been getting questions about trading the shares once the one year period is up, let talk about that what options are available to share holders

Arthur Hardy-Doubleday: thanks Ruth for asking the one year rule is also of interests to me

Freeman White: We are headed in that direction Arthur, but will have to wait and see.

Sean Peppard: Ruth, I expect the rulemaking to address future trading. I also expect second market and the likes to try to create a market at least in larger issuers.

Kevin Berg Grell: @Candace & Sean; I have received a question before the chat: 'The federal law gets passed - what happens to all the state blue sky laws?'

Candace Klein: The JOBS Act pre-empts state law

Freeman White: @Kevin, there will be info sharing to states in certain cases, but as Candace said, the crowdfunding portion of the JOBS Act trumps state law

Sean Peppard: @ Kevin: state law was preempted. So, blue sky will not apply to a proper crowdfunding offering

George Morris: Kevin: the current hope is Regulation A offerings with relief.

Sara Hanks: @maurice and sean, see Sen Brown comments in CR on having an interest in companies on your portal

George Morris: My interest is very high to help growth after crowdfunding

Candace Klein: @George, let's connect:

Sean Peppard: Ruth - for liquidity? It is a huge question for the industry. Investors will want out - how? Auction procedures built into org docs?

Sean Peppard: Drag rights? Right to purchase for FMV?

Arthur Hardy-Doubleday: @Freeman I am assuming I can sign up for a mailing list on the link you just posted

Ruth E. Hedges: Don't investors need to know this before they buy into a company

Sean Peppard: @Ruth - YES. Issuers also need to think about managing hundreds/thousands of investors that eventually will want liquidity

John Fischer: @Sean: RU on LinkedIN?

Sean Peppard: I am on linkedin

Candace Klein: Carl, please post again the link to sign up to participate in the CFIRA ongoing discussion

George Morris: Liquidity is still a logical goal for investors. Plan how they get out before they get in. Email me.

Ruth E. Hedges: Yes and will that happen on the same funding portals

Sean Peppard: I see the largest single issue for the industry is providing liquidity to investors. How to implement a uniform process to the extent possible

Ruth E. Hedges: Sean i agree because that's the whole point of investing in the first place

thenextstreet: I think it is still important for people to understand that even when the year hold is up, there will still be liquidity issues

Candace Klein: I think the SRO will need to address debt v. equity structuring with the SEC, they are clearly different monsters

George Morris: Convertible secured debt is a good thing.

Rafael Chaves Lopes: I believe investors will know that they are investing in startup ventures, which are highly illiquid assets and might only have a way out thd

Sean Peppard: @Rafael: in any Reg D offering you have one or two investors that want out early or get frustrated. Now with the crowd it is unrealistic to not expect more of it.

Sean Peppard: Yes, will future investors agree to have their money take out old investors........

George Morris: Regulation A for example and other solutions will probably require a Finra Broker Dealer. I can help georgemorris@earthlink.netprros

Sean Peppard: @George: I agree, but if they convert you face the same issue.

Darin Gordon: @Sean liquidity is a two edged sword

Kevin Berg Grell: @Candace & Sean; One more from the inbox: If you also added a trading platform, what agencies would the firm find itself needing to comply with? (NASD, SEC, FINRA)?'

Candace Klein: @Kevin, I think it is too early to answer that question. This is an issue that still needs to be discussed and hammered out with the SEC

EcoEinstein: Could the crowdfunding platforms allow investors to offer their shares for sale?

thenextstreet: @Eco 0 great question

Brian Tsuchiya: @EcoEinstein a Funding Portal can not own any shares of the offeree so not likely

EcoEinstein: Brian, I wasn't suggesting the portal would own the shares, only that it serve as an informal way to liquidate them

Maurice Lopes: @BRIAN, that contradicts what Cadence said earlier, funding portal can own interest after the initial offering, funding portal can buy just like the crowd

Candace Klein: @Maurice, we did clarify that, while directors and officers cannot invest, the platform can

Maurice Lopes: fund of funds?

thenextstreet: It will be interesting to see how the market evolves but I would suspect that secondary transactions would more likely occur at platforms like GATE Technologies, Secondmarket, Sharespost & through numerous BDS

Ruth E. Hedges:

John Fischer: @Ruth Thx for sharing link.

George Morris: SEC Hammer out is a good way. And they will.

Darin Gordon: Could I create a startup of startups (a portfolio) that are each crowdfunded 1MM and still fall within legal guidelines?

George Morris: Darin: we are looking at a portfolio of funding.

Freeman White: @Darin, I think it is dangerous to try to find ways of aggregating around the $1M cap. I wouldn't pursue that line of thought.

Darin Gordon: @Freeman that’s how it’s done though

Rafael Chaves Lopes: I believe in the future, a secondary market will eventually arise and give liquidity to these companies, don't you think?

Sean Peppard: Any secondary markets will face same regulatory issues as the industry now, without the benefit of the crowdfunding exemption. The same rules (33 Act, BD laws) apply, plus a few

Ruth E. Hedges: creating an exchange is much more complicated and time consuming then a funding portal

Sean Peppard: @Ruth, I agree, significantly more complicated.

George Morris: Exchanges are very complicated and licensed and watched and.

Ruth E. Hedges: So will we have millions of investors and not any exchanges for them to trade on in 2014 when the one year is up?

EcoEinstein: Ruth, could there be any informal ways for investors to trade via the platforms?

Ruth E. Hedges: good question Eco

Candace Klein: @Eco, this is a question that we should continue discussing, as the SEC will allow us to offer suggestions

George Morris: Candace: just remember, the SEC is all about investor protection not crowd funding

George Morris: White, I agree.

Sean Peppard: Also, there are established secondary exchanges.

Freeman White: Trading of the shares is not a hard year like the regs. It's a year from the purchase

George Morris: Ruth: Creative exit is the idea

Darin Gordon: whoever is 10 steps ahead of regulators gets the lions share. and the crowd follows

Freeman White: Shareholding vs. Shareflipping is the intent of the law

EcoEinstein: George, please explain 'creative exit' -- I like to sound of that?

Sean Peppard: obviously, however, they take a cut, and how this plays with crowdfunding offerings will develop over time

Maurice Lopes: @Ruth, i don't believe that, i know that Goldman Sachs is already building a corwdfunding exchange platform

Ruth E. Hedges: How every long , we still need the exchanges

Sean Peppard: The other thing to consider is future regulations on the exchanges. The facebook example of widely fluctuating prices was closely watched

Freeman White: There are some already and more will develop. This stock just can't be traded on such exchanges for a year from the purchase

Rafael Chaves Lopes: Exchanges are the natural way to go. If they don't come, investors will find a different way to trade.

Ruth E. Hedges: Maurice, would love to learn more when you have moment

EcoEinstein: That's what I was getting at, Raphael.

Maurice Lopes: they will be lots of exchanges.

George Morris: EcoEinstein: we should talk EG: Reg A and

Sean Peppard: Also, sellers on the exchanges need to be careful, fraud rules in sales apply and, as in facebook, many sellers are insiders

Darin Gordon: GS will partner with another group that will build the exchange

George Morris: Maurice: i hope so but I don't think so. The SEC...

Tom Burlingham: You guys think there'd be room for an advisory service for smaller investors, offering Angelist types of profiles but with more detail?

Sean Peppard: I also believe GS had, but shut down, a private company secondary market because of the lack of trades and other risks

EarlyShares: just like the secondary market for private equity, it has been huge the last few years

Sara Hanks: there are platforms that were built out in response to Rule 144A, eg PORTAL Alliance. they would be logical platforms for CF exchanges

Darin Gordon: aka SecondMarket

Rafael Chaves Lopes: I don't think that CFIRA and the NLCFA should allow GS or any other major financial institute to create the exchange. It misses the whole purpose of crowdsourcing

Maurice Lopes: @Rafael, its not up to NLCFA to stop anyone from opening anything, that’s the SEC job, we may not approve them as members if that was the objective?

thenextstreet: @Rafael - I could not agree more

George Morris: Darin: a chance if well done and requiring a lot of money to start

Ruth E. Hedges: i think more people will invest if they can see and understand this process before they invest

EcoEinstein: Could CF platforms act as affiliates for these exchanges and receive fees?

Arthur Hardy-Doubleday: Will this chat be saved so I can review it later?

Eric Mack: @Arthur - We'll make the transcript and highlights of the chat available on in a day or two

Arthur Hardy-Doubleday: @Eric thank you

John Fischer: @Thanks Eric!

Tom Burlingham: @ Eric Mack. a transcript would be great. Thanks!

EarlyShares: @Eric thanks a lot

Sean Peppard: I don't we can stop them. The issue is going to be fees - what do the CF sites charge to get in, and then what does the secondary market charge to get out.

Rafael Chaves Lopes: @EcoEinstein - I think that will be the way to go. Like the stock exchange works.

EcoEinstein: Totally agree, Ruth. Who wants to get stuck with shares that can't be traded until god-knows-when?

Freeman White: @Rafael, the exchanges will develop. Our focus at and largely in the equity crowdfunding industry is on investment, not trading.

Rafael Chaves Lopes: @Freeman, the major public must have this awareness. CF is for long-term investment, not trading

Charles Davidson: @rafeal Yes but define 'long-term' at some point investors will want their return

Rafael Chaves Lopes: @Charles, I believe 'long-term' will be specified in each issuer BP and financial statements

George Morris: Finra is about managing policy and procedures and experience but anything doable

thenextstreet: @Rafael - Goldman tried to create a SecondMarket type platform a few years ago and failed miserably

Ruth E. Hedges: It should be on both

Sean Peppard: @Eco and Ruth: agreed, which is why debt/preferred may be early leaders in the industry - accepted processes built in

EcoEinstein: Sean, please explain.

Ruth E. Hedges: One can't be successful without the other

George Morris: Sean: secure debt and conversion is even better for investors

Sean Peppard: Debt has a known return (the interest rate) and a payoff date when the principal is due. Preferred has redemption processes and what not

Sean Peppard: Now, the companies using them need certainty they can execute, but it provides a known path to liquidity while exchanges develop

Darin Gordon: seniority matters too ..

EcoEinstein: Sean, perhaps you'd like to create a suggestion for the precise wording that CF platforms could use?

thenextstreet: I think it is important to note that crowdfunding forever alters capital formation

Darin Gordon: @thenextstreet I hope it does.

thenextstreet: the entire capital markets is in a state of great transformation

Maurice Lopes: GS is doing it again, its not a plan, its being built as we speak.

Ruth E. Hedges: Yes the bill only say's you must hold on for one year

George Morris: Sean: I think investors know or will quickly know the difference of secured debt and convertible debentures

Darin Gordon: @Maurice got a department? GSEC?

Rafael Chaves Lopes: @Maurice, then we need to keep Wall Street form not becoming a member

Sean Peppard: As to GS, the question is will it work this time. I have my doubts they can charge the fees and get the volume to make it work

Freeman White: 'Long Term' is mandated as at least one year, with some limited exceptions: Accredited Investors, Famlly, back to the issuer, IPO

Rafael Chaves Lopes: I would hate to see something great and democratic as CF get into the hands of Street sharks

thenextstreet: @Rafael - Walmart did not go on to become Amazon.

thenextstreet: Just because Goldman enters the space does not mean they will rule it

Darin Gordon: sharks love that smell of fresh blood

EarlyShares: @Rafael agreed

Freeman White: After that, the stock can trade on a Secondary Market

Maurice Lopes: i would advise platforms to be careful when mentioning IPO as exits for co's seeking funding as this will be the one in a 10,000

Carl Esposti: @ALL - we will be ending the chat in ~3 min

Arthur Hardy-Doubleday: @ the organizers of this chat Thank you

George Morris: Carl: a great experience - THANKS

Carl Esposti: @george - thanks

Carl Esposti: Thank you for attending today’s Live Chat. We will run these chats every Monday at the same time, as long as folks find them valuable.

Ruth E. Hedges: Thank you to everyone for another great 'Chat' and to our host's

EcoEinstein: Can everyone give their email and quick note as to what they do at the end?

mimifla: Could attendees please leave their contact info at the end? Thanks

EcoEinstein: Could we all give our email and mini bios before we go?

Sean Peppard:

Rafael Chaves Lopes: here is my contact:

Arthur Hardy-Doubleday:

Carl Esposti: If you have topics for future chats or any feedback on how to best conduct future Live Chats please email me

Darin Gordon: thanks everyone!

Charles Davidson: VP marketing IncServ corporate (nd other entity) formation, compliance and due diligence services.

EcoEinstein: Peter Einstein - Founder, Crowdfunding4Good (under construction)

Rafael Chaves Lopes: feel free to join my network at LinkedIn as well.

Eric Mack: @all - I'm - shoot me a line if you're planning to be in Manhattan Wednesday.

Sara Hanks: securities lawyer turned entrepreneur.


Rafael Chaves Lopes: Rafael Chaves Lopes /

Freeman White: @Einstien: makes crowdfunding platforms for others and hosts a socially responsible crowdfunding platform.

Carl Esposti: If you have topics for future chats or any feedback on how to best conduct future Live Chats please email me

Maurice Lopes:

Christine Landon: @all Yes, thank you very much. My site will be up (in alpha-beta) by Tuesday. Until then I can be reached on L-in.

mimifla: Michelle Mercier, iPeopleFINANCE,

Candace Klein:; CEO SoMoLend, peer to peer lending platform

George Morris: my contact:

thenextstreet: I am so excited to see everyone on Wednesday!

EarlyShares:, don't hesitate to contact us! and see you in NY

John Fischer: @Carl Thank you for ALL you do!!!! and this LiveChat

Christine Landon: or

Kevin Berg Grell: Thank you all... See you monday.

Carl Esposti: email me if you would like the email list or need to be connected with anyone

Carl Esposti: The transcript of this chat will be posted later this week in the Editorial section of

Charles Davidson: The potential secondary market is so big (in numbers of entities) I could almost imagine an ebay model

Arthur Hardy-Doubleday: @Rafael you are in Brasil?

Rafael Chaves Lopes: @ Arthur, ys I am

Charles Davidson: rather than NASDAQ

Carl Esposti: Have a good week all!

Freeman White: Thank you Carl.

Ruth E. Hedges: You too Carl, Thanks

mimifla: Thanks Carl and all!

George Morris: Carl: what is your email?

Kevin Berg Grell:

Ruth E. Hedges: Thanks Kevin !!

Ruth E. Hedges:

Christine Landon: Thanks Kevin...for ALL your hard work...and everyone at

Arthur Hardy-Doubleday: I am in Rio...if you are near we should chat

Rafael Chaves Lopes: @Arthur, I'm in Rio too. Send me an email and we'll get together

EcoEinstein: Ruth, let's talk again!

Ruth E. Hedges: Yes eco

EcoEinstein: Looking forward to Wednesday night. I don't actually look like this:-)

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