Iowa Admin. Code r. 191-50.90 - Intrastate crowdfunding exemption
(1)
Definitions. For
purposes of this rule, in addition to the definitions set forth in rule
191-501. (502), the definitions
in Iowa Code section
502202(24)."a" and the following definitions apply:
"
"Escrow agent" means a bank, trust company,
savings bank, national banking association, building and
"Issuer" means a person that is authorized
to do business in Iowa and has been approved by the
"Management" means an issuer's directors, executive officers, or the individuals who perform such functions for the issuer.
"Portal website" means the Internet site through which a registered Iowa crowdfunding portal conducts offers and sales of exempt securities under Iowa Code section 502202(24)..
"Principal place of business" means the state or territory from which the officers, partners, or managers of a corporation, partnership, limited liability company, trust or other form of business primarily direct, control and coordinate the activities of the business. "Principal place of business" is not related to "place of business" as defined in Iowa Code section 502102(21)..
(2)
Exemption from
registration.
a. Under the authority
delegated to the administrator to promulgate rules in Iowa Code sections
502203.
and
502605(1).,
a transaction is exempt from the registration provisions of the Act if all of
the conditions in subparagraphs (1) to (4) are met:
(1) The issuer of the securities is at the
time of any offers and sales a person that is a resident and doing business
within the state of Iowa. The issuer shall be deemed to be a resident of the
state of Iowa if it has its principal place of business in Iowa. The issuer
shall be deemed to be doing business within Iowa if the issuer satisfies at
least one of the following requirements:
1.
The issuer derived at least 80 percent of its consolidated gross revenues from
the operation of a business or of real property located in or from the
rendering of services within the state of Iowa.
2. The issuer had, at the end of its most
recent semiannual fiscal year prior to an initial offer of securities in any
offering or subsequent offering pursuant to this rule, at least 80 percent of
its assets and those of its subsidiaries on a consolidated basis located in the
state of Iowa.
3. The issuer
intends to use and uses at least 80 percent of the net proceeds to the issuer
from sales made pursuant to this rule in connection with the operation of a
business within, the operation of real property within, the purchase of real
property located in, or the rendering of services within the state of
Iowa.
4. A majority of the issuer's
employees are based in the state of Iowa.
(2) Sales of securities pursuant to this rule
are made only to residents of the state of Iowa or to persons who the issuer
reasonably believes, at the time of the sale, are residents of the state of
Iowa. An individual shall be deemed to be a resident of the state of Iowa if
such individual has, at the time of sale, the individual's principal residence
in the state of Iowa. A trust that is not deemed by Iowa law to be a separate
legal entity is deemed to be a resident of the state of Iowa only if all of the
trust's trustees are residents of the state of Iowa. For purposes of
determining the residence of a purchaser:
1. A
corporation, partnership, limited liability company, trust or other form of
business organization shall be deemed a resident of the state of Iowa if, at
the time of sale to it, it has its principal place of business within the state
of Iowa.
2. A corporation,
partnership, trust or other form of business organization that is organized for
the specific purpose of acquiring securities offered pursuant to this rule
shall not be a resident of Iowa unless all of the beneficial owners of such
organization are residents of Iowa.
(3) The issuer is not, before or as a result
of the offering, any of the following:
1. An
investment company registered or required to be registered under the Investment
Company Act of 1940 (15 U.S.C.
80a-1 et seq.).
2. A hedge fund, commodity pool, or similar
investment vehicle.
3. A
development stage company that either has no specific business plan or purpose
or has indicated that the company's business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person.
4. A company with a class
of securities registered under the federal Securities Exchange Act of
1934.
b. All offers and
sales of securities made in reliance upon this rule shall be made through an
intermediary's Internet site.
(3)
Integration.
a. Offers and sales made in reliance on this
rule may be integrated with other offers and sales when the following factors
apply:
(1) The sales are part of a single plan
of financing;
(2) The sales involve
the issuance of the same class of securities;
(3) The sales have been made at or about the
same time;
(4) The same type of
consideration is received; and
(5)
The sales are made for the same general purpose.
b. Offers and sales made in reliance on this
rule shall not be integrated with offers and sales made more than six months
before the start of the offering or more than six months after completion of an
offering, so long as during those six-month periods there are no offers or
sales of securities by or for the issuer that are of the same class or of a
similar class as those offered or sold under these rules, other than those
offers or sales of securities under an employee benefit plan.
(4)
Bad actor
disqualification.
a. The exemption
of 50.90(2) shall not be available if the issuer; any predecessor of the
issuer; any affiliated issuer; any director, executive officer, other officer
participating in the offering, general partner or managing member of the
issuer; any beneficial owner of 20 percent or more of the issuer's outstanding
voting equity securities, calculated on the basis of voting power; any promoter
connected with the issuer in any capacity at the time of such offer or sale;
any investment manager of an issuer that is a pooled investment fund; any
person that has been or will be paid (directly or indirectly) remuneration for
solicitation of purchasers in connection with such offer or sale of securities;
any general partner or managing member of any such investment manager or
solicitor; or any director, executive officer, or other officer participating
in the offering of any such investment manager or solicitor or general partner
or managing member of such investment manager or solicitor:
(1) Has been convicted, within ten years
before such offer or sale (or five years, in the case of issuers, their
predecessors and affiliated issuers), of any felony or misdemeanor that is any
of the following:
1. In connection with the
purchase or sale of any security.
2. Involving any making of any false filing
with the SEC or a state securities commission or agency or state official
performing like functions.
3.
Arising out of the conduct of the business of an underwriter, broker, dealer,
municipal securities dealer, investment adviser or paid solicitor of purchasers
of securities;
(2) Is
subject to any order judgment or decree of any court of competent jurisdiction,
entered within five years before such offer or sale that, at the time of such
offer or sale, restrains or enjoins such person from engaging or continuing to
engage in any conduct or practice that is any of the following:
1. In connection with the purchase or sale of
any security.
2. Involving the
making of any false filing with the SEC or a state securities commission or
agency or state official performing like functions.
3. Arising out of the conduct of the business
of an underwriter, broker, dealer, municipal securities dealer, investment
adviser or paid solicitor of purchaser of securities;
(3) Is subject to a final order of a state
securities commission or agency or state official performing like functions; a
state authority that supervises or examines banks, savings associations, or
credit unions; a state insurance commission or agency or state official
performing like functions; an appropriate federal banking agency; the U.S.
Commodity Futures Trading Commission; or the National Credit Union
Administration that:
1. At the time of such
offer or sale, bars the person from:
* Association with an entity regulated by such commission, authority, agency, or officer;
* Engaging in the business of securities, insurance or banking; or
* Engaging in savings association or credit union activities; or
2. Constitutes a final
order based on a violation of any law or regulation that prohibits fraudulent,
manipulative, or deceptive conduct, including making untrue statements of
material facts or omitting to state material facts, entered within ten years
before such offer or sale;
(4) Is subject to an order of the SEC entered
pursuant to the Securities Exchange Act of 1934 (15 U.S.C. Section 78o(b) or 78o-4(c))
or the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3(e) or (f)) that, at the time of such
offer or sale:
1. Suspends or revokes such
person's registration as a broker, dealer, municipal securities dealer or
investment adviser;
2. Places
limitations on the activities, functions or operations of such person;
or
3. Bars such person from being
associated with any entity or from participating in the offering of any penny
stock;
(5) Is subject to
any order of the SEC entered within five years before such offer or sale that,
at the time of such offer or sale, orders the person to cease and desist from
committing or causing a violation or future violations of:
1. Any scienter-based, antifraud provision of
the federal securities laws, including without limitation the Securities Act of
1933 (15 U.S.C. Section 77q(a)(1)); the Securities Exchange Act of
1934 (15 U.S.C. Section 78j(b) and
17
CFR 240.10b-5); the Securities Exchange Act of 1934 (
15 U.S.C.
Section 78o(c)(1)); the Investment Advisers
Act of 1940 (15 U.S.C. Section 80b-6(1)); or any other rule or regulation
thereunder; or
(6) Is suspended or expelled from membership
in, or suspended or barred from association with a member of, a registered
national securities exchange or a registered national or affiliated securities
association for any act or omission to act constituting conduct inconsistent
with just and equitable principles of trade;
(7) Has filed (as a registrant or issuer), or
was or was named as an underwriter in, any registration statement or Regulation
A offering statement filed with the SEC that, within five years before such
offer or sale, was the subject of a refusal order, stop order, or order
suspending the Regulation A exemption, or is, at the time of such offer or
sale, the subject of an investigation or proceeding to determine whether a stop
order or suspension order should be issued;
(8) Is subject to a United States Postal
Service false representation order entered within five years before such offer
or sale, or is, at the time of such offer or sale, subject to a temporary
restraining order or preliminary injunction with respect to conduct alleged by
the United States Postal Service to constitute a scheme or device for obtaining
money or property through the mail by means of false representations;
(9) Has filed a registration statement which
is subject to a final stop order entered under any state's securities law
within five years before such offer or sale; or
(10) Is currently subject to any final state
administrative enforcement order or judgment entered by a state's securities
administrator within five years prior to such offer or sale.
b. Paragraph
50.90(4)"a" shall not apply under either of the following
circumstances:
(1) Upon a showing of good
cause and without prejudice to any other action by the commissioner, if the
commissioner determines that it is not necessary under the circumstances that
the exemption be denied; or
(2) If
the issuer establishes that it did not know and, in the exercise of reasonable
care, could not have known that a disqualification existed under this subrule.
An issuer will not be able to establish that it has exercised reasonable care
unless it has made, in light of the circumstances, factual inquiry into whether
any disqualifications exist. The nature and scope of the factual inquiry will
vary based on the facts and circumstances concerning, among other things, the
issuer and the other offering participants.
c. Events relating to any affiliated issuer
that occurred before the affiliation arose will be not considered disqualifying
if the affiliated entity is not:
(1) In
control of the issuer; or
(2) Under
common control with the issuer by a third party that was in control of the
affiliated entity at the time of such events.
(5)Filing requirements for
issuers.
a. An issuer may declare an
offering exempt for a maximum of 12 months and rely on this intrastate sales
exemption if the issuer submits at the administrator 's website, and receives
approval from the administrator , at least 30 days prior to the offer of any
security in reliance upon Iowa Code section
502202(24).,
all of the following:
(1) A properly
completed Iowa Crowdfunding Notice Filing Form (available at the
administrator 's website).
(2) The
issuer's articles of incorporation or other charter documents pursuant to which
the issuer is organized.
(3) The
issuer's bylaws or operating agreement and all amendments thereto.
(4) A copy of any resolutions setting forth
terms and provisions of the securities being issued.
(5) The issuer's financial statements as of
the end of the issuer's most recent fiscal year, prepared in accordance with
generally accepted accounting principles. If the date of the most recent fiscal
year end is more than 90 days prior to the date of the filing, the issuer must
also submit an unaudited balance sheet and unaudited statement of income or
operations, both prepared in accordance with generally accepted accounting
principles for the issuer's most recent fiscal year.
(6) A copy of any agreements between the
issuer and any intermediary.
(7) A
copy of any subscription agreement for the purchase of securities in the
offering.
(8) A copy of the escrow
agreement between the issuer and an escrow agent for the deposit of offering
proceeds.
(9) A specimen or copy of
the security to be offered, including required legends, if the issuer will
issue physical certificates.
(10) A
copy of all advertising and other materials directed to or to be furnished to
investors in the offering.
(11) A
copy of all disclosure documents directed to or to be furnished to investors in
the offering.
(12) Any other
information reasonably requested by the commissioner.
(13) A filing fee of $100.
b. If an issuer will make offers
and sales of an offering after the exempt offering period declared by the
issuer on the Iowa Crowdfunding Notice Filing Form, the issuer must renew the
offering exemption by submitting at the administrator 's website, and receiving
approval of the administrator , at least 30 days prior to the expiration of the
original exempt offering period, all of the following:
(1) A report of sales as of the most recent
practical date that includes the following information:
1. The time period in which the offering was
open.
2. The number of shares or
units sold in the offering.
3. The
number of investors that purchased shares or units in the offering.
4. The dollar amount sold in the
offering.
(2) A copy of
the issuer's updated Iowa Crowdfunding Notice Filing Form.
(3) The issuer's financial statements as of
the end of the issuer's most recent fiscal year, prepared in accordance with
generally accepted accounting principles. If the end date of the most recent
fiscal year is more than 90 days prior to the date of renewal, the issuer also
shall submit an unaudited balance sheet and an unaudited statement of income or
operations, both prepared in accordance with generally accepted accounting
principles for the issuer's most recent fiscal quarter.
(4) A renewal filing fee of $100.
c. Upon completion of an offering
made in reliance upon this rule, an issuer shall file at the administrator 's
website, and receive the administrator 's approval of, a final sales report that
includes all of the following information:
(1)
The time period in which the offering was open.
(2) The number of shares or units sold in the
offering.
(3) The number of
investors that purchased shares or units in the offering.
(4) The total dollar amount sold in the
offering.
(6)
Minimum offering amount. The issuer shall establish a minimum
offering amount that is sufficient, together with other sources of financing,
to implement the business plan of the issuer, as disclosed in the submitted
offering information.
(7)
Escrow agreement. The issuer must enter into an escrow
agreement with an independent escrow agent to hold funds in an escrow account,
and the escrow agreement shall include all of the following terms:
a. All offering proceeds shall be maintained
in an account controlled by the escrow agent.
b. All offering proceeds will be released to
the issuer only when the aggregate capital raised from all purchasers that have
signed commitments to invest is equal to or greater than the minimum offering
amount disclosed in the offering materials submitted to the administrator with
the issuer's filing of paragraph 50.90(5) "a."
c. If the proceeds do not meet the minimum
offering amount disclosed in the offering materials within one year of the
earlier of the commencement of the offering or the first posting of the
offering on the Internet, the issuer shall return all funds to
investors.
d. None of the following
shall have any claim to the escrowed proceeds:
(1) A creditor of an escrow agent.
(2) An affiliate of an escrow
agent.
(3) A creditor of the
issuer.
(4) An affiliate of the
issuer.
(5) A creditor of an
intermediary engaged by the issuer.
(6) An affiliate of an intermediary engaged
by the issuer.
e. The
escrow agent agrees to maintain its independence from the issuer, any
intermediary or Iowa crowdfunding portal assisting with the offering, and the
officers, directors, managing members, and affiliates of the issuer or any Iowa
crowdfunding portal assisting with the offering.
f. The commissioner may inspect the records
of the impound account maintained by the escrow agent at any reasonable time at
the location of the records and copy any record.
g. The escrow agreement must be signed by an
officer of the issuer and an authorized representative of the escrow
agent.
h. The escrow agent may not
be affiliated with the issuer, any Iowa crowdfunding portal assisting with the
offering, or any officers, director, managing member, or affiliate of the
issuer or any intermediary assisting with the offering.
i. If the minimum offering amount is not
received by the end of the offering period, the proceeds shall be returned to
the purchasers within 30 days.
j.
All purchasers shall have the right to withdraw their investments, without
deduction of any kind, until such time as offering proceeds totaling at least
the minimum offering amount are received.
(8)
Disclosure requirements for
issuers.
a. Nothing in this
exemption is intended to or should be in any way construed as relieving issuers
or persons acting on behalf of issuers from providing disclosure to prospective
investors adequate to satisfy the requirements of rule 191-50.90 (502) and the
antifraud provisions of Iowa Code chapter 502. The issuer is required to
provide full and fair disclosure to investors of all material facts relating to
the issuer and the securities being offered. If eligible, the issuer may use
Form U-7 , which may be obtained from the NASAA website atwww.nasaa.org.
b. Among other risk disclosures, the issuer
must provide the substance of all of the following disclosures to all
prospective purchasers and investors:
(1)
There is no ready market for the sale of the securities acquired in this
offering. It may be difficult or impossible for an investor to sell or
otherwise dispose of this investment. An investor may be required to hold and
bear the financial risks of this investment indefinitely.
(2) No federal or state securities commission
or regulatory authority has confirmed the accuracy or determined the adequacy
of the disclosures provided.
(3) In
making an investment decision, investors must rely on their own examination of
the issuer and the terms of the offering, including the merits and risks
involved.
(4) The securities have
not been registered under federal or state securities laws and, therefore,
cannot be resold unless the securities are registered or qualify for an
exemption from registration under federal and state law.
(9)
Books and
records. An issuer that has filed under this rule must keep and
maintain written or electronic records relating to offers and sales of
securities made in reliance upon this rule for at least six years following
termination of the offering. These records are subject to such reasonable
audits or inspections by the administrator or a representative of the
administrator as the administrator considers necessary or appropriate in the
public interest and for the protection of investors. An audit or inspection may
be made at any time and without prior notice. The administrator may copy, and
remove for audit or inspection copies of, all records the administrator
reasonably considers necessary or appropriate to conduct the audit or
inspection.
(10)
Iowa
crowdfunding portal registration.
a.
To register as an Iowa crowdfunding portal, a person shall submit to the
administrator at the administrator 's website all of the following:
(1) A completed Iowa Crowdfunding Portal
Registration Form, available on the administrator 's website, including all
required schedules and supplemental information.
(2) A completed Form U-4 , available on the
administrator 's website, for each agent as defined in Iowa Code section
502102(2)..
(3) Any other information requested by the
administrator to determine the financial responsibility, business reputation,
or qualifications of the Iowa crowdfunding portal.
(4) The registration fee of
$100.
b. The person must
receive approval of the submission and registration by the administrator before
the person may operate as an Iowa crowdfunding portal.
c. Registration expires at the close of the
calendar year in which a registration was issued, but the registration may be
renewed for the succeeding year by submission to the administrator at the
administrator 's website of both a $100 registration fee and a written request
for renewal, including any material changes to the information submitted in the
prior registration submission.
(11)
Duties of an Iowa crowdfunding
intermediary.
a.
Maintenance
of intermediary website. An Iowa crowdfunding intermediary shall
create and maintain the intermediary website and make information and services
available on or through the intermediary website in compliance with this
rule.
b.
Background and
regulatory checks. Prior to offering securities to residents of Iowa,
the intermediary shall conduct a reasonable investigation of the background and
history of each issuer whose securities are offered on the intermediary website
and of each issuer's control persons. "Control persons" for the purpose of this
subrule means the issuer's officers; directors; or other persons having the
power, directly or indirectly, to direct the management or policies of the
issuer, whether by contract or otherwise; and persons holding more than 20
percent of the outstanding equity of the issuer. The intermediary shall deny an
issuer access to the intermediary website if there is a reasonable basis to
believe that one or more of the following are true:
(1) The issuer or any of its control persons
is subject to disqualification under subrule 50.90(3).
(2) The issuer has engaged in, the issuer is
engaging in, or the offering involves any act , practice, or course of business
that will, directly or indirectly, operate as a fraud or deceit upon any
person.
(3) The intermediary cannot
adequately or effectively assess the risk of fraud by the issuer or by the
issuer's potential offering.
c.
Purchaser screening.
Before a security is sold through the intermediary, the intermediary shall
ensure that the purchaser does all of the following:
(1) Reviews the information provided in the
offering documents.
(2) Provides to
the intermediary an affirmative representation from the purchaser acknowledging
receipt of the disclosure statement provided to the purchaser by the issuer
pursuant to subrule 50.90(8).
(3)
Provides to the intermediary an affirmative representation that the purchaser
is an Iowa resident.
d.
Information about the issuer and the offering. The
intermediary shall make available on the intermediary website information about
the issuer and the offering. The information shall include all of the
following:
(1) A copy of the disclosure
statement required by subrule 50.90(8).
(2) A summary of the offering, including all
of the following:
1. A description of the
entity; its form of business, principal office, history, and business plan; and
its intended use of offering proceeds, including compensation paid to any
owner, executive officer, director, or manager.
2. The identity of the executive officers,
directors, and managers, including their titles and their prior experience and
the identity of all persons owning more than 20 percent of the ownership
interests of any class of securities of the company.
3. A description of the securities being
offered and any outstanding securities of the company, the amount of the
offering, and the percentage of ownership of the company represented by the
offered securities.
e.
Intermediary website
forum. The intermediary shall maintain a forum on the intermediary
website. The forum shall be available to all potential purchasers as well as to
the administrator . The intermediary website shall contain a disclaimer that
reflects that access to securities offered on the intermediary website is
limited to Iowa residents and that sales of the securities appearing on the
intermediary website are limited to persons that are Iowa residents. Potential
purchasers may ask questions and receive answers concerning the terms and
conditions of the offering and may obtain additional information which the
crowdfunding issuer possesses or can acquire without unreasonable effort or
expense necessary to verify the accuracy of or to clarify the information
provided on the intermediary website. The intermediary may adopt reasonable
rules and procedures for the website forum, including registration and
authentication requirements.
f.
Enforcement of limits. The intermediary shall take reasonable
measures to ensure that no purchaser exceeds the limits set forth in Iowa Code
section
502202(24)."c" and "d."
g.
Administrator access. The
intermediary shall provide the administrator purchaser-level access at all
times to the intermediary website, pursuant to Iowa Code section
502202(24)."g" (8).
(12)
Prohibited conduct for
intermediaries. An intermediary and individuals of the intermediary's
management:
a. Shall not have ownership or
other financial interest greater than 20 percent in the crowdfunding
issuer.
b. Shall not hold, manage,
possess, or otherwise handle purchaser funds. Proceeds are to be held in escrow
until the minimum impound amount has been met.
c. Shall not compensate employees, agents or
other persons not registered with the administrator for soliciting offers or
sales of securities displayed or referenced on the intermediary
website.
(13)
Commissions, fees or other remuneration. Commissions, fees or
other remuneration for soliciting any prospective purchaser in connection with
the offering shall only be paid to intermediaries or any other persons who are
appropriately registered or licensed with the commissioner.
(14)
Advertising and
communications.
a.
Advertising. The crowdfunding issuer shall not advertise the
specific details of the offering, except for notices which direct potential
purchasers to the intermediary website. Notwithstanding the foregoing, the
issuer may distribute a notice that the issuer is conducting an offering of
securities, the name of the intermediary through which the offering is being
conducted, and a link directing the potential investor to the intermediary. The
notice shall contain a disclaimer that the sale of the security is limited to
persons who are Iowa residents.
b.
Communications. All communications between the issuer and
potential purchasers taking place pursuant to Iowa Code section
502202(24).
shall occur through the intermediary website of the intermediary. During the
time the securities are being offered on the intermediary website, the
intermediary shall, pursuant to paragraphs 50.90(11) "d"
and"e," provide channels through which potential purchasers
can communicate with one another and with the issuer about the securities being
offered. These communications shall be visible to all those with access to the
intermediary website.
(1) An issuer shall
respond within ten days to requests for information made by potential
purchasers or by the administrator through the intermediary website.
(2) If such additional information is
material and not previously included on the intermediary website, the
crowdfunding issuer and the Iowa crowdfunding portal shall immediately amend
the information contained on the intermediary website.
(15)
Offering
price. The offering price of the securities offered and sold pursuant
to this exemption shall be the same for all purchasers and shall not be
increased during the offering period. The offering price may be lowered, but
only if all previous purchasers in the particular offering are notified of the
change and allowed to rescind their previous investment and participate at the
lower offering price.
(16)
Resale of securities. On the document that is to serve as
evidence of ownership, the issuer shall place a prominent notice which states
that the securities have not been registered and which sets forth limitations
on resale contained in SEC Rule 147A(e) (17 CFR 230.147A(e)), including that,
for a period of six months from the date of last sale by the issuer of the
securities in the offering, resale by any person shall be made only to Iowa
residents.
This rule is intended to implement Iowa Code section 502.202.
Notes
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