SEC Exempts Another Crowd Funding Site From Broker-Dealer Rules

by Stinson Leonard Street - Dodd-Frank and the Jobs Act

The SEC has granted AngelList relief on accepting transaction based compensation for crowd funding, exempting it from the broker-dealer rules.  A couple days ago, the SEC granted relief to  Makes you kind of wonder what is going to happen next. 

These holes in the broker-dealer-rules are big enough to drive a truck through.  Since they are based on granting the crowd funding site a carried interest, they will cost founders a lot of money.  FINRA registered broker-dealers might charge 6% plus some warrants, not a 20% carried interest.  Founders should be saying “Ouch.”

To provide persepctive, a crowd funding platform may have to register with FINRA as a broker-dealer if it accepts commissions or their equivalent from the sale of securities because that makes the crowd funding site a broker-dealer.  Otherwise stated, when a crowd funding site collects money from investors or the issuer, it has to be sure it is not transaction based compensation which makes it a broker dealer, requiring FINRA registration. The crowd funding sites always collect money sometime, and hence the requests for no-action relief.

For those of you interested, in this paper we examined the perils of dealing with unregistered broker-dealers such as other crowd funding sites that may be broker dealers and the consequences, along with other ground rules for raising money for start-ups.

Note in this case AngelList represents it was going to register with the SEC as an investment advisor, but that is different from registering with FINRA as a broker-dealer.  Among other things, this distinguishes, which represents it is exempt from registration as an investment advisor as a venture capital advisor under the Dodd-Frank Act.

AngelList Advisors proposes to offer investors two investment models in which to invest in an Investment Vehicle on its platform: one is called an “Angel Followed Deal” and the other is an “Angel Advised Deal.” In an Angel Followed Deal, the Lead Angel will not be required to take an active role with respect to advising the Investment Vehicle or the Portfolio Company, and may not even be aware that it is being “followed” by the other Investors. In an Angel Advised Deal, the Lead Angel will be aware that it is being followed; and will agree to take an active role in identifying the investment opportunity, leading negotiations with the Portfolio Company, and providing (or offering to provide) significant managerial assistance and financial guidance to the Portfolio Company. AngelList represented that the Lead Angel will not provide investment advice to the Portfolio Company, AngelList Advisors or Investors, unless it is appropriately registered as an investment adviser with the SEC or a state securities authority, or is properly exempt from registration as an investment adviser.

AngelList Advisors represented that it will not receive a commission or management fee as compensation for its advisory services, but will be entitled to receive compensation (i.e., carried interest), as described in each Investment Vehicle’s offering documents. This compensation would be equal to a portion of the increase in value, if any, of the investment as calculated at the termination of the investment in the Investment Vehicle. Under the Angel Advised Deals, the Investment Vehicle will also provide the Lead Angel with compensation based on the overall profitability of the Investment Vehicle.  AngelList also stated that AngelList Advisors may, upon distribution of the Investment Vehicle’s assets, be entitled to recoup any initial expenses it paid in the formation ofthe Investment Vehicle.

Let’s thank the SEC for their advice on these two matters which will undoubtedly lead to capital formation for small businesses.  But a piece really missing is we need SEC guidance on whether these models constitute a general solicitation, destroying the private offering exemption.

In the meantime, what are practitioners to think?  These entities broadly advertise their wares on the internet, and the SEC must be aware of that.  When will the SEC (hopefully) state this is not a general solicitation?

Check frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Dodd-Frank and the Jobs Act | Attorney Advertising

Written by:

Stinson Leonard Street - Dodd-Frank and the Jobs Act

Stinson Leonard Street - Dodd-Frank and the Jobs Act on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.