12.14.2011

Cones Analyzes HR 2930 and What It Means for Film Investments

On November 8, 2011, the Senate read HR 2930 as passed by the House of Representatives for the 2nd time and placed the legislation on the Senate's calendar for further consideration. The bill, referred to as the Entrepreneur Access to Capital Act, ostensibly seeks to amend the federal securities law to provide for registration exemptions for so-called "crowd funded" securities.

The legislation, if approved by the Senate without further changes (i.e., as passed by the House) and signed into law by the President, would amend the Securities Act of 1933 to exempt from the registration requirement securities offerings for $1,000,000 or less (or up to $2,000,000 if the issuer provides audited financial statements). It also limits the amount sold to any investor to $10,000, or 10% of such investor's annual income. Additional requirements are set out for sales through intermediaries and/or issuers. Further, the legislation calls on the Securities and Exchange Commission ("SEC") to promulgate rules to carry out the intent of the legislation.

How does it differ from the SEC's Regulation D, Rule 504? What level of disclosure to investors is required? Is "crowd funding" the appropriate term to use in describing this new small offering exemption? What changes will be made, if any, on the Senate side? How will SEC rule-making impact the legislation, if passed? What are the practical limitations for such small offerings?

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