Friday, February 5, 2010

Your Website is Public

I realize this may be an obvious statement. Your website is public.

However, consider what that means in the securities offering context. Say you post details about your fund raising efforts on the publicly available part of your website. Maybe not exactly as part of your fund raising effort, but as an attempt to get information out there -- a stock offering is newsworthy, right?

Well, as I mentioned yesterday, in order to have a valid Reg. D private placement (and, consequently, in order to be exempt from registering your securities offering with the SEC) you must avoid any "general solicitations" when you are doing a Reg. D private placement. A general solicitation is defined as offering to sell securities by "any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media."

And guess what? The SEC considers an internet posting about your securities offering to be "other communication" published in "similar media." So, if you post details about your fundraising, you may very well be making a general solicitation and inadvertently blowing your securities law exemption.

Now, this may not be fatal. But before you can know, it will take a review of exactly what details of your offering you put on your website and an analysis of whether your actual potential investor saw these details before they initiated contact with you.

But why take the chance?

For example, earlier this month I was looking at the website of an interesting medical device company that had approached me to represent them going forward. On their main page they had a link called "Investors." When you clicked it, you were taken to a page that said (roughly): "We are currently raising $8,000,000 in a Series B financing over multiple closings. Please contact Fred Smith at Phone Number XX for more information."

On its face, it is hard to view this as anything other than an advertisement for a securities offering. If a serious investor (that was a stranger to your company) actually contacted you out of the blue and said "hey, saw the website and the page about the Series B financing and would love to get more info." Wouldn't it be tricky to argue that he was not interested in investing in you at least partially "because" of the advertisement he saw on your website?

I can tell you one thing that is certain -- you will not be very happy when your lawyer tells you that you can't take money from him because he found out about your offering through your website.

An quick and easy way to minimize this problem would be to add some sort of disclaimer to whatever web pages you have that talk about your offering. Maybe something like "This is not an offer to sell securities." Just a few simple words like that are potentially enough to switch your web page from a securities offering advertisement to more of a news report about current company events.

Of course, simply putting a limp little legend like this on an obvious securities offering (say with full term sheet and subscription agreement available on the web) won't help you. In that type of situation you are hosed anyway. But in a close call like the example above, adding the legend may be enough to get you out of the danger zone.

Be careful out there people and try not to violate securities laws.

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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.