3 Colo. Code Regs. § 704-1-51-3.24

Current through Register Vol. 47, No. 20, October 25, 2024

Section 3 CCR 704-1-51-3.24 - Crowdfunding - Additional Issuer Requirements

A.Investor Qualifications.

1. Before accepting any investment, an issuer must verify that the aggregate amount sold by the issuer to any person during the twelve-month period preceding the date of sale does not exceed $5,000, or take reasonable steps to verify that any person who has purchased an aggregate amount greater than $5,000 from the issuer during any twelvemonth period satisfies the accredited investor definition under the SEC's Rule 501 of Regulation D (17 CFR 230.501).

2. Before accepting any offer to purchase securities from any person pursuant to the Colorado Crowdfunding Act, an issuer must comply with the certification requirements of section 11-51-308.5(3)(a)(VII).

B.Communications Between the Offerees and the Issuer. After reviewing any Form CF-2 posted by an issuer through an on-line intermediary, any offeree may communicate directly with the issuer pursuant to the method described in the Form CF-2 to obtain further information or to provide the issuer with a notice that the offeree intends to make an investment in the offering as described in the Form CF-2.

C.Notice of Investment Commitment. After a person directs funds to the escrow account in an offering being conducted through an on-line intermediary, the issuer must promptly send to such person a notification disclosing:

1. The dollar amount of the investment commitment;

2. The price of the securities;

3. The name of the issuer;

4. The amount of the minimum offering and the maximum offering;

5. The amount of proceeds received in the escrow account as of the date of such notification; and

6. Whether such person has the right to cancel their investment prior to the deadline in the escrow agreement to reach the minimum offering amount and what such person must do to invoke that right.

D.Notice of Completion of Transaction. The issuer must, at or before the release of funds from escrow pursuant to Rule 51-3.24(F), send to each investor a notification disclosing:

1. The date of the transaction;

2. The type of security that such person is purchasing;

3. The identity, price, and number of securities being purchased by such person, as well as the number of securities sold by the issuer in the transaction through the date of the notification, and the price at which the securities were sold;

4. If a debt security, the interest rate and yield to maturity calculated from the price paid and the maturity date;

5. If a callable security, the first date that the security can be called by the issuer;

6. Whether the offering is being continued or is completed; and

7. Other information that the issuer determines is appropriate or necessary to provide to the person purchasing securities from the issuer in the offering being conducted pursuant to the Colorado Crowdfunding Act.

E.Transmission of Funds. The on-line intermediary and issuer shall direct investors to transmit all payments for the purchase of securities directly to the escrow account specified in the Form CF-2 until the offering is completed or terminated.

F.Escrow Agreement. For transactions occurring pursuant to section 11-51-308.5, C.R.S., issuers must place all funds received from investors in an escrow account which shall be established pursuant to a written agreement between the issuer (as depositor) and an unaffiliated depository institution or other escrow agent approved by the Commissioner, and other interested parties (if any). The written agreement shall meet the requirements of the Colorado Crowdfunding Act and these Rules.

1. Each agreement for the establishment of an escrow account shall include:

a. The date of the agreement;

b. The names and addresses of the issuer, the escrow agent, and any other parties to the agreement;

c. The terms of the escrow, including a specific reference to section 11-51-308.5, C.R.S.;

d. A provision for the delivery of the purchased securities by the issuer to the investor at the time of, or prior to, the release of funds to the issuer;

e. Whether the escrowed funds will earn interest and, if so, a description of the manner in which interest accrued on the escrowed funds will be used or otherwise distributed;

f. Unless the minimum/maximum requirement is waived or modified by the Commissioner, the agreement shall contain a provision that prohibits the issuer from accessing the escrowed funds until the aggregate funds raised from all investors equals or exceeds the minimum offering amount in a timely fashion (as the minimum offering amount and the period of the offering are defined in the issuer's Form CF-2 as filed with the Commissioner), a provision detailing the conditions under which the escrowed funds are to be released to the issuer or are to be returned to the prospective investors, and whether, after any initial closing and distribution of funds to the issuer, the offering may continue with further funds being deposited into the escrow account; and

g. A statement that the escrowed funds may not be released to the issuer until the lapse of at least seven (7) days after the receipt by the Commissioner of notice of the proposed release of funds from such escrow, provided in paragraph 3 below, or upon written authorization of the Commissioner of any earlier release.

2. The Commissioner may, in their sole discretion, authorize release of escrowed funds pursuant to section 11-51-308.5, C.R.S. prior to the lapse of seven (7) days after receipt by the Commissioner of the notice provided in paragraph 3 below. In such cases, the Commissioner shall provide the issuer with such authorization in writing in a form that may be presented to the escrow agent.

3. A notice of proposed release of funds from escrow under section 11-51-308.5, C.R.S. shall be filed with the Commissioner on Form ES-CF. Proof of filing the Form ES-CF with the Commissioner may be established by a receipt or other writing upon which the Commissioner, by stamp or other writing, evidences that the Form ES-CF was received.

4. The notice shall contain, at a minimum, the following information:

a. The gross amount of aggregate proceeds received from the sale of any and all of the securities sold in the offering;

b. Whether the offering is completed;

c. Whether any additional funds may be received by the issuer in exchange for securities issued in the offering;

d. A description of each transaction, including the dates of each transaction, the parties to each transaction, the amount committed in each transaction, a description of how the proceeds are to be spent under the terms of each transaction, including the specific lines of business, and a description of how the securities will be delivered to the purchaser; and

e.Any additional information the Commissioner may require as material to the Commissioner's determination.

G.Single Intermediary. An issuer shall not conduct an offering or concurrent offerings in reliance on the Colorado Crowdfunding Act using more than one on-line intermediary.

H.Sales Representative. An issuer shall not conduct an offering in reliance on the Colorado Crowdfunding Act through a sales representative who is not associated with nor acting on behalf of a broker-dealer that is a member of FINRA.

I.Quarterly Report Timing. Each quarterly report shall be provided to all holders of the issuer's securities and the Commissioner within forty-five days after the end of each fiscal quarter.

J.Issuer Distribution of Notice of Offering. The issuer may, in accordance with section 11-51- 308.5(3)(a)(XIV), distribute a statement that the issuer is conducting an offering. When used in section 11-51-308.5(3)(a)(XIV), the term "within Colorado" includes a statement distributed by, at the direction of, or on behalf of the issuer on the issuer's website or through electronic mail or social media if the statement includes (at a minimum) disclaimers and restrictive legends making it clear that the offering is limited to residents of Colorado and there is in fact a confirmation of residency before the recipient or viewer of such statement can access the Form CF-2 or other information related to the offering.

K. Single Plan of Financing. In accordance with section 11-51- 308.5(3)(a)(XI), the exemption provided by the Colorado Crowdfunding Act shall not be used 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 which is part of the same issue. The determination whether offers, offers to sell, offers for sale, and sales of securities are part of the same issue (i.e., are deemed to be integrated) is a question of fact and will depend on the particular circumstances. In determining whether offers and sales should be regarded as part of the same issue and thus should be integrated, any one or more of the following factors may be determinative:

1. Are the offerings part of a single plan of financing;

2. Do the offerings involve issuance of the same class of securities;

3. Are the offerings made at or about the same time;

4. Is the same type of consideration to be received; and

5. Are the offerings made for the same general purpose.

L. Federal Rules Applicable. Offerings made pursuant to the Colorado Crowdfunding Act must be conducted in a manner consistent with SEC Rule 147 (17 CFR 230.144) or Rule 147A (17 CFR 230.147A).

M. Failure of an issuer to comply with any of the provisions of section 11-51-308.5, these Rules, or any order, will constitute a violation of those provisions, Rules, or orders, and subject the issuer to the enforcement authority of the Commissioner under section 11-51-602.

3 CCR 704-1-51-3.24

38 CR 01, January 10, 2015, effective 1/30/2015

38 CR 08, April 25, 2015, effective 6/1/2015

38 CR 18, September 25, 2015, effective 10/15/2015

39 CR 01, January 10, 2016, effective 1/30/2016

40 CR 01, January 10, 2017, effective 1/30/2017

40 CR 12, June 25, 2017, effective 7/15/2017

41 CR 13, July 10, 2018, effective 7/31/2018

43 CR 05, March 10, 2020, effective 3/30/2020

46 CR 05, March 10, 2023, effective 3/30/2023