Crowdfunding In Colorado Is Now Available: Let The Offerings Roll! (Part 2)

The Colorado Crowdfunding Act

The CF Act requires that the issuer and the offering be exempt from the registration requirements of federal law pursuant to the intrastate exemption set forth in § 3(a)(11) of the Securities Act of 1933 and Rule 147 adopted by the Securities and Exchange Commission (the “SEC”). The CF Act was discussed in detail in the April 2015 Business Law Section Newsletter, but the CF Act was not self-implementing. Although effective August 5, 2015, the CF Act required rulemaking from the Colorado Division of Securities (the “Division”) to be implemented.

In order to be adopted before the effective date of the CF Act, on July 29, 2015, the Division acted on an emergency basis to adopt Rules 3.20 through 3.30 after publishing draft rules and receiving public input. (The rules are found in the Code of Colorado Regulations available through the Secretary of State’s website at 3 CCR 704-1:51-3.20 et seq.) Formal decision making under the Colorado Administrative Procedure Act (C.R.S. § 24-4-101 et seq.) will occur this fall. C.R.S. § 24-4-103(6)(a) provides that emergency rules are effective for no more than 120 days after adoption. The final rules will be considered at a hearing to be held on August 31, 2015, at 1:30 pm.

It is important to note that no issuer may use the CF Act “in conjunction with any other exemption pursuant to section 11-51-307, 11-51-308, or 11-51-309 during the immediately preceding twelve-month period” (C.R.S. § 11-51-308.5(3)(a)(XI)). The precise meaning of this statutory language is not clear. Does it mean that an issuer that has issued securities pursuant to one of those Colorado exemptions in the prior twelve months is unable to raise funds under the CF Act? Or does it mean that the prior offering and the crowdfunding offering somehow have to be related, part of a “single plan of financing”?

By Herrick K. Lidstone, Jr., Burns, Figa & Will, P.C., republished from Newsletter, Business Law Section, Colorado Bar Association,  August 2015

Herrick Lidstone