Concept Release: The Securities and Exchange Commission Asks for Feedback on Ways to Harmonize Securities Exemptions

The Securities and Exchange Commission is seeking comments on the current securities exemption structure. In a release yesterday, the SEC asked the public to provide feedback on “ways to simplify, harmonize, and improve the exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and to promote capital formation.”

In the US, there is an alphabet soup of securities exemptions, or methods for companies to raise capital, while remaining compliant under the law. The rules have been created over decades with tweaks and additions that have added to what can only be described as a mish-mash of convoluted rules.

For ordinary people, the structure is Byzantine at best. The only true beneficiaries are lawyers steeped in the acronym-speak of securities law. Issuers pay dearly for this knowledge.

For online capital formation, this publication frequently references Reg D506c, Reg A+ and Reg CF, even while recognizing the fact that most people find this confusing as they simply want to raise capital while being compliant.

Part of the equation and SEC consultation is the definition of an “accredited investor.” Long in use, the current rule is wealth based demanding individuals that qualify to earn over $200,000 a year or have a net worth of more than $1 million. While simple to apply, this metric has failed in recognizing investor sophistication. While common sense dictates that wisdom is not measured by cash in the bank, the current regime has disenfranchised tens of millions of investors. As private markets have become a preferred route for capital formation, the net effect has been to block the masses from some of the most promising investment opportunities in history. Meanwhile, the rich get wealthier.

The SEC has long discussed their project to review securities exemption harmonization. The common-sense initiative was launched by SEC Chair Jay Clayton who commented on the request for public feedback:

“We are taking a critical look at our exemptions from registration to ensure that our multifaceted private offering framework works for investors and entrepreneurs alike, no matter where they are located in the United States. Input from startups, entrepreneurs, and investors who have first-hand experience with our framework will be key to our efforts to analyze and improve the complex system we have today.”

While it is not clear if there will be an actionable outcome, the project is long overdue.

[easy-tweet tweet=”We are taking a critical look at our exemptions from registration to ensure that our multifaceted private offering framework works for investors and entrepreneurs alike” template=”light”]

The concept release seeks input on whether changes should be made to improve the entire exemption ecosystem. The SEC is asking for feedback on the following topics:

  • The limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities
  • The Commission should take steps to facilitate a company’s ability to transition from one offering to another or to a registered offering
  • The Commission should expand companies’ ability to raise capital through pooled investment funds
  • Retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds such as interval funds and other closed-end funds
  • The Commission should revise its exemptions governing the secondary trading of securities initially issued in exempt offerings

Crowdfund Insider asked Doug Ellenoff, Managing Director of Ellenoff Grossman & Schole and longtime advocate of financial innovation for his thoughts on harmonization. Ellenoff credited the SEC staff for pursuing a more rational approach to private offerings exemptions:

“In the aftermath of the JOBS Act of 2012, the rules have only become more arcane and I believe more confusing for the public to navigate these regulatory financing options.  While I appreciate the need and history of each of the provisions, other than securities lawyers, what entrepreneur is able to properly process the range of currently available options (pros and cons; expenses etc.)–4(a)(2); 4(a)(6); Rule 504; Reg D– 506(b); 506(c); 3(a)(11), Rule 147 and Rule 147A; Reg A and Reg A+,” stated Ellenoff.

He said there is just no simple, common sense way to explain these provisions:

“I have spoken at hundreds of events to glazed over audiences trying to convey it in a digestible manner … and even seasoned securities lawyers are having trouble making sure their clients truly understand how to proceed legally and make the right judgment call,” Ellenoff stated. “So it’s timely in my judgment to clarify and meaningfully crowdsource responses to the SEC’s list of dozens of questions.  I encourage everyone’s participation.   This is a significant challenge but a magnificent chance to make a meaningful impact on capital formation for entrepreneurs to effect securities law policy.”

Maxwell Rich, a securities attorney and Chief Compliance Officer of leading crowdfunding platform Republic had this to say:

“Republic supports the Commission’s efforts in studying ways that the various registration exemptions used to raise capital in the United States can be simplified, harmonized and improved. While regulation crowdfunding is a nascent and emerging capital formation framework, its interactions with other exemptions such as Reg D and Reg A+ lack synergy and symmetry, which causes investor and issuer confusion.”

Rich said they hope this study will provide “common sense and actionable recommendations” for expanding investment and capital raising opportunities while maintaining appropriate investor protections.

Youngro Lee of NextSeed 3Youngro Lee, founder and CEO of NextSeed and Chair of the Association of Online Investment Platforms, added his voice of support for the SEC’s harmonization initiative.

“This is a very positive development for the future of small business capital formation laws.  The original JOBS Act was instrumental in launching a new industry seeking to provide opportunities for small businesses and everyday investors, but there were real challenges presented by the legal limitations.  Thoughtful harmonization of the various confusing securities offering exemptions could truly accelerate the adoption of new capital formation laws for the benefit of everyone.”

By requesting the public’s feedback on regulatory harmonization we can expect a diversity of opinion on the matter. But in the end, it is what the SEC does with the information. And whether they are willing to act, or alternatively, they feel a need to pass the buck over to Congress.

Regardless, it is painfully obvious action is needed.

The public comment period for the concept release will remain open for 90 days following publication of the release in the Federal Register.



The Commission issued a concept release that reviews the framework for exempt offerings, including several exemptions from registration under the Securities Act of 1933 that facilitate capital raising.  The concept release seeks comment on possible ways to simplify, harmonize, and improve this exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.


Over the years, and particularly since the Jumpstart Our Business Startups Act of 2012, several exemptions from registration have been introduced, expanded, or otherwise revised.  As a result, the overall exempt offering framework has changed significantly.  Our capital markets would benefit from a comprehensive review of the design and scope of the Commission’s exempt offering framework.


The concept release requests comment on:
The Exempt Offering Framework Whether the Commission’s exempt offering framework, as a whole, is consistent, accessible, and effective for both companies and investors or whether the Commission should consider changes to simplify, improve, or harmonize the exempt offering framework.
The Capital Raising Exemptions within the Framework Whether there should be any changes to improve, harmonize, or streamline any of the capital raising exemptions, specifically: the private placement exemption and Rule 506 of Regulation D, Regulation A, Rule 504 of Regulation D, the intrastate offering exemptions, and Regulation Crowdfunding.
Potential Gaps in the Framework Whether there may be gaps in the Commission’s framework that may make it difficult, especially for smaller companies, to rely on an exemption from registration to raise capital at key stages of their business cycle.
Investor Limitations Whether the limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection (i.e., whether the current levels of investor protection are insufficient, appropriate, or excessive) or pose an undue obstacle to capital formation or investor access to investment opportunities, including a discussion of the persons and companies that fall within the “accredited investor” definition.
Integration Whether the Commission can and should do more to allow companies to transition from one exempt offering to another and, ultimately, to a registered public offering, if desired, without undue friction or delay.
Pooled Investment Funds Whether the Commission should take steps to facilitate capital formation in exempt offerings through pooled investment funds, including interval funds and other closed-end funds, and whether retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds in light of the potential advantages and risks of investing through such funds.
Secondary Trading Whether the Commission should revise its rules governing exemptions for resales of securities to facilitate capital formation and to promote investor protection by improving secondary market liquidity.

What’s Next?

The Commission welcomes all feedback and encourages interested parties to submit comments on any or all topics of interest and to respond to one, multiple, or all questions asked in this release.

The concept release will be published on the Commission’s website and in the Federal Register.  The comment period will remain open for 90 days from publication in the Federal Register.

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ICOs are Securities: Token Based Offerings Poised for a Rude Awakening as US Regulators May Soon Act

The US Securities and Exchange Commission (SEC) pumped their regulatory brakes on Initial Coin Offerings (ICOs) earlier this year. Pointing to the DAO debacle, the Feds said if a tokenized offering is a security it will be regulated, end of story. This  statement was a long time in coming and was largely greeted as a pretty sensible approach. But this verbal shot across the bow caused the ICO industry to slow down for all of 30 seconds before ICOs powered back up, regrouped, and hit warp speed again. One attorney in the Fintech space described ICOs as crowdfunding on Cocaine, a reasonable analogy.

Much of the industry discussion has swirled around the nuances of the Howey Test – a series of questions to determine whether, or not, an investment is a security. Some ICO industry participants went to great pains to establish the fact their Token was a “Utility” Token and hence not a security and in no need of regulation. The Utility came from the hypothesis that its intended use was for a specific purpose. But at the same time many of these tokens were easily exchangeable for Bitcoin or other cryptocurrencies thus adding a twist to the token purchasing game.

Recently, the Commodity Futures Trading Commission (CFTC) published a Primer on cryptocurrencies and Blockchain technology. Buried within the primer was the statement that all virtual currencies are commodities and thus regulated by the CFTC. So when does a digital asset cross the line from being a token to become a regulated product? Good question.

Earlier this month, John Wright Gotts, who operates a web site titled “the Tokens & Exchange Self Regulating Body,” published a blog that addressed the question as to when a token is regulated and when it is not. The basis of the post followed a trip to the Securities and Exchange Commission in Washington, DC. The takeaway is that just about all ICOs are regulated. There are “Stokens” or security tokens, as Gotts calls them. And there are Tokens which are commodities or currency. The SEC gets to handle the securities version and the CFTC must monitor the commodity/currency variety. Only in very rare cases when an ICO involves a perimetered token that cannot be traded on an exchange will it not be regulated. In brief, just about every ICO in the US would fall under regulation and thus many have allegedly broken existing securities laws.

Crowdfund Insider reached out to crowdfunding guru Doug Ellenoff. A securities lawyer by trade, Ellenoff is a frequent visitor to the halls of the SEC where he is both respected and liked. His law firm, Ellenoff, Grossman & Schole (EGS), is probably the most prominent law firm in the investment crowdfunding sector having been a leader in the industry since it commenced. More recently, EGS has been active in the ICO sector. We asked Ellenoff to comment on Gotts’ opinion and here is what he said;

“We have spent the better part of the last year agonizing over these issues and wanting to disagree with this articles conclusion and desiring that a truly new form of capital raising has been identified for entrepreneurs,” said Ellenoff.  “We have reviewed the applicable case law and published memos by law firms, spoken with numerous regulators, industry participants and professionals, attended a variety of crypto/blockchain and engineering conferences, lectures, read source materials, including books and white papers on the subject, and in the end [we] believe that there seems to be very little light to make a convincing argument that a token isn’t subject to existing regulatory oversight by the SEC, other Foreign regulatory authorities, State Securities Agencies or CFTC.”

Emphasis added.

In effect, if a US based ICO is not filing for a securities exemption, such as Reg D or Reg A+, it is in conflict with existing law and may expect a visit from the SEC Division of Enforcement at some point in the future. Ellenoff added that it is not impossible to do a Utility Token, but the real world experience is there are few of these or perhaps none at all.

“We aren’t saying that it is impossible to create a token that is unregulated but as you seriously analyze the “facts and circumstances” of many tokens in the market today, particularly in the context of policy considerations, and how they realistically function in the market (both on a primary issuance and secondary trading basis), even utility tokens, arguably have many equity-like characteristics (or are investment contracts),” shared Ellenoff.

Consequently, according to Ellenoff, the position that ICOs aren’t subject to regulatory regimes is simply wrong.

“[ICOs] seem to be too reliant on overly technical analysis of various components of the law without comprehensively recognizing the broad scope of these government agencies, the policy considerations involved and what is actually going on, what the funds are for and to whom these instruments are being sold—while we had hoped to make a contrary conclusion and have actively sought the counter argument, we accept that this is capital formation and investment, which has rules in place.”

Crowdfund Insider reached back out to Gotts for additional feedback and his criticism of ICOs was even more pointed. He believes the ICO market, in its current state, is largely a pump and dump scheme.

“This whole space is filled with vipers and criminals. My work with the SEC is to uncover and prosecute the biggest pump and dumps in space,” said Gotts.

Gotts believes that some ICOs are allowing early investors, or “whales” to swoop in at a discount, purchase tokens and then dump them during the public sale. That’s not good. In fact, that would be illegal in many countries, including the US. We have heard industry rumors that concur with Gotts’ assessment.

A prime target of Gotts is Bancor. He calls it the “poster child for illegal ICOs”. Not too long ago, Bancor raised a whopping $153 million that raised more than a few eyebrows. A few months following the Bancor ICO, the token valuation is pegged at just $78 million on CoinmarketCap.

“If Bancor raised $153 million, why is its coin only worth $78 million? How is it not trading for cash on hand?” asks Gotts.

That is a good question for investors to ask the Bancor founders.

[clickToTweet tweet=”“If Bancor raised $153 million, why is its coin only worth $78 million?’ #ICO” quote=”“If Bancor raised $153 million, why is its coin only worth $78 million?’ #ICO”]

The most recent ICO melodrama is the Tezos fiasco. Following a crowd sale that raised $232 million (with some estimates placing the total haul at $400 million following the rapid rise in crypto values) the Tezos team devolved into virtual fisticuffs. The very public bickering has placed the entire project in question with one law firm investigating the offering for possible securities fraud. And think about the valuation necessary to justify such a sizable raise.

Tezos benefitted in part from the high profile participation of VC Tim Draper who invested in the company. It was reported that Draper received a solid pre-ICO discount. Remember, Tezos is still pretty much a concept; a white paper and a vision.

Cointelegraph recently wrote a scathing article asking if Draper may have been “cheating” questioning whether or not he was in for the long haul. A sensible question to ask.

Some industry insiders predict the Feds will make an example of an ICO before the end of the year. But regulators are sensitive to the optics surrounding innovation so they are proceeding with caution. There is also a question as to whether or not they will go after a high profile ICO (and the money to fight back) or gun for a smaller target.

While too many questions surround the ICO market and there are plenty of opinions on either side, Gotts, for one, sees a viable industry emerging from whatever happens going forward. As long as issuers follow the rules, ICOs can and will work. But for now he prefers caution leaving one to wonder when, not if, the SEC will address the elephant in the room of a company selling securities but not filing the appropriate securities exemptions. Simultaneously, will the Feds be digging into the chatter of these alleged pump and dump schemes?

“The SEC and CFTC have a maniacal focus to protect investors,” explains Gotts. “Of course, they are interested.”


Doug Ellenoff: We Have Concerns about ICOs But Want to Work With the Industry to Ensure a Successful Outcome

The Initial Coin Offering (ICO) space has been rocketing recently. It seems that every few days the next hot ICO is raising incredible sums of money from global investors. ICOs have plenty of supporters and detractors with most followers advising caution in this largely unregulated sector. While we know that regulators have been watching the emerging ICO market so far it has been more of a wait and see approach. Crowdfund Insider Senior Contributor Amy Wan posited earlier this year that ICOs are probably regulated by securities law.

Just this past week, Tezos raised an astounding $232 million in its crowdfunded offer. Bitcoin 65,637 and Ether 361,122 was invested into Tezos.

Another hot offer was Bancor. This ICO raised $144 million in June. The offer engendered a hot debate regarding the Bancor business plan with at least one industry expert questioning the Bancor value proposition.

The rapid rise of ICOs has had law firms scrambling to better understand this newest method to raise capital online. Recently, we heard the New York City based law firm of Ellenoff, Grossman & Schole (EGS) had created an internal working group to better understand the ICO market. Doug Ellenoff, a founding partner of EGS, has best been known for his staunch advocacy of investment crowdfunding.  A clear supporter of innovations in finance, Ellenoff maintains a close relationship with federal securities regulators. Crowdfund Insider recently contacted Ellenoff to learn about what his law firm has discovered in their research regarding ICOs.  Our discussion is below.

Crowdfund Insider: EGS has recently created a working group on Initial Coin Offerings. Can you please explain the mission of this group and what you hope to accomplish?

Doug Ellenoff: Furthering our ongoing interest in enhancing entrepreneurs access to capital through both traditional and alternative means of finance, we decided to dedicate a group of our senior securities professionals to learn more about ICOs and come to our own independent analysis about the legal foundation on which ICOs rest.

ICOs present an exciting new means for entrepreneurs to raise much needed capital in a new manner.

In less than twelve months more than 60 companies have raised more than five hundred million dollars. [Editors note: this was prior to Tezos]

As professionals we have taken considerable interest in ICOs and have taken leadership positions in the establishment of various other new programs, like PIPEs/RDs, SPACs and most recently Crowdfunding. We are always looking out for new financing techniques and we believe that we have a unique positioning to assess ICOs and how we might be of assistance in this emerging program.

Crowdfund Insider: Can you share anything of note that you have uncovered to date?

Doug Ellenoff: There are numerous well intentioned entrepreneurs represented by very qualified lawyers and law firms and they have thoroughly analyzed how ICOs operate in the context of traditional securities laws and what constitutes a security.

While there are certain offerings that seem to be defensible on a highly technical basis, there are others which really strain the bounds of such thinking. Having worked cooperatively with regulators on most of our new programs, we tend not to rely solely on technical analysis in lieu of common sense for the simple reason that you may miss the forrest for the trees.

Furthermore, you may have to spend substantial sums of money defending that position all the way through the courts if challenged.

We believe that any enthusiasm for a new program, like ICOs, ought to also consider the potential impact on the public and why regulators who are tasked with the difficult task of consoling the public after suffering losses might have legitimate public interest concerns.

It boils down to whether you prefer to ask for permission first or ultimately forgiveness. The current euphoria like other sharing economy phenomenas seems to have elected the latter.

Our preferred route, like we did with the JOBS Act is to engage fully with all stakeholders including regulators to ensure that the most practical and responsible approach is undertaken, even if that means delay and compromise.

Crowdfund Insider: The ICO market has been red hot. Do you believe this a bubble? Or is this just early excitement?

Doug Ellenoff: As we have been on record with most of the other programs that we have participated in, we encourage a slow build of any new program so that the inevitable mistakes and inadvertent oversights can be ironed out in a measured way out of the limelight so that we can collectively build a solid foundation before the program accelerates and becomes institutional.

We have our concerns that ICOs haven’t gone through that maturity curve first but want to work with the industry to ensure a successful long term outcome.

Crowdfund Insider: For people participating in an ICO it is clearly an investment. But it is a security?

Doug Ellenoff: There seems to be a defensible argument that in certain cases that an ICO can be structured so as to not be deemed a security in the classic sense. Taking that position is not without significant regulatory risk in our judgement.

As your question intimates, it’s an “investment”. We would encourage issuers to pay particular attention to the actual purchasing value of the individual tokens. Even if these offerings aren’t technically securities offerings, they still may be subject to a variety of other regulatory regimes and do clearly cause purchasers to speculate with their earnings.

There seems to be an emerging refrain amongst industry participants that the entrepreneurs are prepared to take the business risk of taking the position that ICOs are not a security and therefore exempt from not only the securities laws but other possible regulations as well.

We understand that Entrepreneurs need capital but we don’t feel that they are really weighing the full risks of their decision to proceed. We have our concerns that this analysis is both expedient and naive in a highly regulated industry.

The ask for forgiveness approach may work in the transportation and hospitality industries but it worked less well in online gaming and we fear that it will fare considerably worse with this new program in the securities industry if not managed carefully. The securities industry balances capital formation AND investor protection.

Crowdfund Insider: Do you expect regulators to increase oversight? Where does the SEC stand on ICOs?

Doug Ellenoff: Unquestionably and inevitably yes, Federally and at the State level. The SEC and other regulators are aware of ICOs and are no doubt in the process of establishing their views on how to proceed. Don’t take their inaction at this juncture as any kind of endorsement or acceptance. It doesn’t work that way.

Crowdfund Insider: Have you encountered any acts of fraud to date?

Doug Ellenoff: Depends on what you mean by fraud.

From a securities law perspective, if some ICOs are deemed to be a security, all of those ICOs are likely to be deemed a fraud on the market if they weren’t processed properly as securities offerings. The subsequent purchase and sale of the coins will be integral to that analysis as well.

Fraud as in stolen capital or capital obtained in misleading ways may not be uncovered for sometime, if it even really turns out to be much of an issue at all. We are concerned though with potential manipulation of the valuations/pricing of the secondary trading of those coins, which could be deemed a fraud as well. Might the company have liability for this secondary market trading? These are all novel issues which need to considered. Because the program is too early in its development, readers shouldn’t take any comfort yet.

Regardless, we are quite concerned with the speculation and rapidly increased valuation attributed to the purchased coins. As with all investments, we would encourage moderation and diversification.

Separately, even without a fraud, we have our concerns about the impact on the companies for future finance ability and sale ability once they have undertaken an ICO. Until these issues are addressed and resolved, there will be considerable market uncertainty that may cause harm to these companies.

Crowdfund Insider: Do you believe ICOs will become a robust method for capital formation over the next few years?

Doug Ellenoff: We do not. Although the markets have been as strong as we have seen in many years, we don’t believe that it is sustainable at its current rate.

Fig Keeps Leveraging Initial Reg A+ Crowdfunding Filing

Fig Publishing is arguably one of the most creative Reg A+ crowdfunding offers to date. Fig, for those who are not aware of the platform, is a video game publisher that crowdfunds its games. In brief, when games successfully complete campaigns and start selling, the developer, Fig and holders of Fig Game Shares all share in the sales receipts from the game. This is a far cry from the perk-based platforms where you are effectively donating money and, if you are lucky, may receive some item in return. In the Fig model, your economic interests are more in alignment.

The structure of the offer uses Reg A+ in a unique way. Created by the law firm of Ellenoff, Grossman & Schole, in brief this is how it is set up:

  • Fig issues a series of preferred stock that is associated with a particular game under development.
  • Fig takes the proceeds of that offering into its own funds.
  • Fig uses its funds to support the development and publishing of that particular game as well as all the other development support and publishing efforts Fig is undertaking for other games.
  • If, and when, the game associated with that series of preferred stock is successfully developed and launched, Fig will pay a dividend to the holders of that preferred stock, based on the revenue share that Fig receives from the sales of that particular game.

Fig has taken a single, qualified Reg A+ filing, and utilized it several times while amending the Offering Circular.

To date, Fig has used it for of the following games:

Already Offered: Qualification Date:
Fig Game Shares – PSY2 September 29, 2016
Fig Game Shares – Wasteland 3 March 17, 2017
Fig Game Shares – Pillars of Eternity II May 10, 2017
Being Added Hereby: Qualification Date:
Fig Game Shares – Phoenix Point Pending

Fig founder Justin Bailey recently spoke at the Digital Dragon’s expo in Poland. Destructoid covered his presentation and it was quite interesting. Bailey commented on the decline of perk-based crowdfunding due to the “crowdfunding fatigue” and the fact that backers are less enthusiastic about giving away their money while receiving little in return;

“We had the data years ago, we knew where the trends were going to be going, and we knew the narrative of charitable donations was not going to work long-term. We saw the evolution of crowdfunding happening, where if you added a way fans could actually get money back from the creators they support, that’s something people wouldn’t get tired of.”

Desctructoid points to the fact that “four of the top ten video game crowdfunding campaigns launched between January 2016 and now were conducted on Fig, accounting for 71.6% of money earned by those ten campaigns.” That totals more than $13 million.

That’s impressive.

Bailey says he wants to protect crowdfunding as he believes the investment model is actually quite sustainable (in contrast to perks/rewards). And if Fig delivers returns for investors, he will prove himself right.

Fig Secures $7.84 Million in Series A Funding Round Led By Spark Capital & Greycroft

Fig Publishing announced on Thursday it secured $7.84 million during a Series A Funding Round, which was led by Spark Capital and Greycroft with participation from Resolute Ventures, NextView Ventures, and Draft Ventures.

Fig 1Fig, which was founded in 2015, allows accredited and non-accredited investors to participate in the success of video games through either rewards-based campaigns or by investing in shares tied to a game project securities, called Fig Game Shares. The shares notably pay returns based on the sales revenue of a single game, so investors get paid when a game launches, rather than having to wait for an exit if and when that occurs, which is the case with other crowdfunding platforms supporting investments in game studios. Justin Bailey, CEO of Fig, explained this past summer:

“The Fig model has never been done before. We’re building this to last, and to help evolve crowdfunding, so that fans have an opportunity to invest in us and receive a return from a successful game.”

Fig enlisted the assistance of Ellenoff, Grossman & Schole (EGS), a prominent Manhattan law firm to help manage the process. As previously reported, the firm represents many of the crowdfunding platforms operating in the US. It has also worked with many issuers raising capital online.  Doug Ellenoff, who is Managing Partner of EGS, is considered one of the most recognizable figures in the U.S. crowdfunding industry. He is also one of the individuals who helped facilitate the change in regulations to empower investment crowdfunding.

While discussing Fig’s growth over the past year, Spark Capital General Partner, Nabeel Hyatt, shared:

“Fig is singular in video games in that it is the first to allow fan investors to participate in the upside of a video game’s financial performance. Investors on Fig don’t have to wait for a company to be sold before they can reap returns, an occurrence that is rare and can take 7 to 10 years.”

 Jon Goldman, Venture Partner of Greycroft, also commented:

“Interactive Entertainment is a $100 billion-a-year industry yet many talented, veteran teams are still constrained by lack of resources. Fig provides a new avenue for funding that brings makers and players into an entirely new relationship, which should foster innovation and help this amazing creative industry grow even bigger.” 

Justin BaileyIn regards to Fig’s future plans, Bailey added:

“Looking forward, we’re exploring the possibility of amplifying the impact of fans even further by inviting institutional investors who have already expressed interest in our unique model to provide matching funds across our platform.”

Fig stated it plans to use the funds from the investment round to accelerate the number of innovative game projects made available to investors and backers on its crowdfunding portal. The funding portal’s Series A funding round news comes just a couple weeks after Fig announced it hosted four of the year’s 10 largest crowdfunded games including Psychonauts 2, Wasteland 3, Jay and Silent Bob: Chronic Blunt Punch, Consortium: The Tower, Kingdoms and Castles, Make Sail, and Trackless. Last year, Fig had a 78% campaign success rate.


Fig Updates on Reg A+ Filing for Model “Never Done Before”

Fig Crowdfunding

Fig, the game crowdfunding platform, has updated the status of its Reg A+ filing with the SEC. The hybrid funding platform has been working to gain approval of their securities offer and has recently filed an updated Form 1-A with the SEC seeking approval to sell shares to investors.  Justin Bailey, CEO of Fig, explained in a blog post that the process has taken longer than expected but;Justin Bailey

“…the Fig model has never been done before. We’re building this to last, and to help evolve crowdfunding, so that fans have an opportunity to invest in us and receive a return from a successful game. So we need to get it right — for investors and developers.”

The Fig strategy is for investors to generate gains based off a game’s revenue rather than the performance of the company.  There is no expectation that the security will be tradeable like a traditional stock. Fig explains their approach as having advantages over buying traditional equity in a startup;

“…investors don’t have to wait for a studio to be acquired to cash out, which is in itself a very rare occurrence in games. With Fig’s Game Shares, they should begin to see dividends within a few months after a game is developed and ships. Second, investor dividends are based on sales, rather than profit – this further helps to align investors’ interests with that of the developers in working efficiently to balance development cost with the final quality of the game.”

The updated filing with the SEC includes a “streamlined structure” that incorporates a single entity to manage distributions instead of individual LLCs for game developers. They will also be distributing funds based off of demonstrable milestone achievements by developers – instead of a lump sum. Fig Game Shares track an individual game and investors receive a percentage of gross sales – minus developer royalties and other expenses.

Fig Crowdfunding Model 1

The Psychonauts 2 game, and developer Double Fine, previously collected revenue from their rewards based project that ran in January.  Their “next step” is to act upon the indications of interest from their Testing the Waters campaign and actually sell the securities to investors – but this necessitates SEC approval.  Fig has enlisted the prominent law firm of Ellenoff, Grossman & Schole – a leader in the investment crowdfunding space – to help shepherd the process through the SEC.  While the offer may be taking longer than expected, it is typical for the SEC to request additional information during a Reg A+ offer.


Doug Ellenoff Reflects on 2015. Sees Opportunity in Reg CF / Title III Crowdfunding



Doug Ellenoff Singapore 2JPG


Doug Ellenoff is one of the most recognizable names in the entire investment crowdfunding space. A founding partner of Manhattan law firm Ellenoff, Grossman & Schole, early on he and his firm staked a claim in the nascent alternative finance sector.  Ellenoff is a frequent speaker on all things crowdfunding both domestically and abroad. He regularly visits the SEC and FINRA to share his opinion on the different securities exemptions made into law under the JOBS Act of 2012.

US_Congress_02Addressing the US House of Representatives this past summer, Ellenoff cited the success of Title II, accredited crowdfunding, since rules were announced;

“Dozens of entrepreneurial projects have been funded in most States due to Title II.  In the first year, there were 1,931 recorded 506c financings; 51 were specifically Manufacturing; 19 Agricultural; 98 Oil and Gas; 32 Restaurants and 33 Retailing.  While California, Texas and NY based offerings certainly dominated statistically, with 813 of the closed financings, there is significant participation from many other States, with all States, Districts and Territories having offerings seeking to avail themselves of the benefits of Title II.  Arizona had 44 closed deals; Colorado 52; Georgia 40; Illinois 65; Missouri 42; Nevada 26; Oregon 21; Pennsylvania 41; Utah 56; Virginia 25 and Washington 31… it certainly has given investors much greater investment choice … and grows the economy in other ways.”

Crowdfund Insider recently touched base with Ellenoff to hear his thoughts on 2015 and his expectations for the coming year.



Doug Ellenoff 2Crowdfund Insider: 2015 has been an eventful year for the crowdfunding industry.  Reg A+ became actionable and Title III rules were announced. Looking back over the past 12 months, what are some other big events?

Doug Ellenoff: [see list below]

  • CircleUp announced a partnership with 301 Inc, General  Mills’ business development and venture unit that invests in emerging consumer food brands
  • JP Morgan’s partnership with OnDeck
  • Fundrise forming an eREIT [using Regulation A+]
  • SEC enforcement action against Ascenergy for fraud
  • OurCrowd tops $150 million invested through its platform
  • RealtyMogul has financed over 300 properties

Crowdfund Insider: Title II / 506(c) has been available for some time now yet uptake appears to be slow. Why do you think this is the case?

Doug Ellenoff: I actually don’t accept the premise of the question.  All new alternative securities programs take time to establish themselves.  Title II is off to a very smooth and acceptable start and have proven the naysayers completely wrong.   Dozens of entrepreneurs have raised capital that they wouldn’t have been able to do so previously. Established market participants, including business people, lawyers, accountants and investment professionals are reluctant to embrace change even when it is permissible activity.  They reflexively stay with the tried and true ways of old, even though the new alternative means of raising funds may be worthwhile.  If you look at several of our other programs, like PIPEs, SPACs and RDs, these securities programs which were consciously avoided for years have proven themselves and are now mainstream financing options.  Title II will gain momentum in 2016.

Crowdfund Insider: Are you optimistic about Title III / Reg CF?

Money in Wallet 100Doug Ellenoff: I am.  Unlike the other provisions of the JOBS Act, Title III uniquely addresses a fundamental structural problem for entrepreneurs unable to access capital.  Title III also enfranchises non-accredited investors to participate in local investing.  Title III will however, take even longer to find its footing, even though the market need for Title III is undeniable.  Because of negative commentary by regulators and lawyers, Title III will require an even longer runway to gain market acceptance.  For Title III to really become useful, it will have to be increased to permit $5 million dollar financings.  Since it is currently capped at $1 million, initially, I believe that much of the Title III activity will be stapled to other activity.  In particular, those  platforms that already have viable businesses will simply add a Title III campaign to complement their other initiatives, whether it is a pre-sale offer or a Title II financing.

Crowdfund Insider: Are there areas that you think can be improved?

Doug Ellenoff: Most Title III proponents agree that the $1 million cap should be increased to $5 million; investors ought to be permitted to invest through a special purpose vehicle; and the liability of the platforms should be even more limited.

Doug Ellenoff Georgia QuinnCrowdfund Insider: What do you think about initial results from Reg A+?

Doug Ellenoff: I am impressed by the overwhelming response to many of the TTW campaigns, it clearly indicates that retail investors are eager to commit capital to truly visionary entrepreneurial campaigns—fully recognizing how at risk their capital is and that there is a true likelihood of loss.  This is a direct response to the trend in the broker-dealer community to avoid retail investors because of the risk of litigation and regulatory pressure for the last couple of decades.

Crowdfund Insider: Lending via Marketplace / P2P platforms has boomed.  Do you foresee this for the equity side of online finance?

Doug Ellenoff: Equity markets are always substantially smaller than debt markets and so while I expect financings of both Title II and Title III to increase in activity year-over-year for the next decade, I would anticipate a slower adoption of equity.  Keep in mind that Title III does permit debt financing as well, so I expect that Title III debt financing activity to be much greater over the next couple of years.

Jumpstart Our Business 2012 JOBS ActCrowdfund Insider: Why is the access to capital / access to investment opportunity so important?

Doug Ellenoff: Capital is the feedstock of any entrepreneur’s dream.  Without capital and the desire for investors to take appropriate risk, entrepreneurship can’t thrive.   The JOBS Act provisions facilitate entrepreneurship by making capital formation more efficient.

Crowdfund Insider: How do you see the internet finance / Fintech space evolving over the next 5 to 10 years.

Doug Ellenoff: Just like with online trading in the early 2000s, this was a controversial and interesting topic, now it is merely a means to an end and barely a topic of discussions—the same will be true with online investing through portals and platforms, it just will be.

Santa Claus Christmas 2Crowdfund Insider: Any big predictions for 2016?

Doug Ellenoff: For the last 3 years I have been predicting that Title III would be approved, so that tells you how good I am at predicting—I am just glad it has finally happened.

Game Crowdfunding Platform Fig Publishing Launching Reg A+ Offer to Raise $15 Million

Fig Publishing, born in part from the huge success of Double Fine Ventures and its standout Kickstarter crowdfunding campaigns, is raising capital and it has just filed a Tier 2 Regulation A+ offer with the SEC. The filing, completed by the law firm of Ellenoff, Grossman & Schole, states an equity offer of $15 million at a price per share of $500. No word on which platform the offer may list.

Fig is an investment crowdfunding platform just for video games. The all or nothing platform will offer both rewards and investment opportunities for qualified individuals. Fig seeks to create a sustainable ecosystem to support game developers both before and after funding.

Justin BaileyFig only launched this past October. Justin Bailey, COO of Double Fine and now CEO / founder of Fig Publishing, explained at the time that his experience with several highly successful rewards-based campaigns compelled him to take the one size fits all model and create a platform fine tuned only for games;

“By coupling investment based crowdfunding with a strategy to build and retain a lasting community, Fig has the potential to grow crowdfunding in games into a healthy and self-sustaining ecosystem,” stated Justin. “Together with our advisors –  the creators who’ve helped influence and evolve the whole crowdfunding medium – we’ve envisioned a new model where studios can stay independent, new talent can be discovered, and profits can be shared with the fans and investors who’ve helped them along the way.”

Fig PublishingFig management believes their platform arrives at a critical time. Developers want their customers to be shareholders and they need a vehicle to allow their community to become owners.

Speaking with NextView, Justin explained his vision;

“I believe crowdfunding is the solution for many companies, not just in the gaming space… In the gaming industry, we are seeing a pattern today where traditional publishers are doing what big movie studios had done in the past, and they are only fronting big budget projects and won’t take any chances on new ideas. And so all these independent creators are gaining followings. We want to allow for the ability to invest in more video games, like the people who backed the early Broadway shows or the investors in independent films.”

Tim Schafer Double FineThe gaming industry in general is pretty enormous with global game revenue pegged at $81.5 billion in 2014 – approximately $20.5 billion is from the US alone.  Fig has launched only a few campaigns so far but this includes Double Fine’s Psychonauts 2.  As of today, Psychonauts 2 has raised over $2.8 million on a $3.3 million goal via Fig.  Over 17,000 backers have kicked into the project. Pretty incredible.


Georgia Quinn Joins Law Firm of Ellenoff, Grossman & Schole

Georgia Quinn National Press Club 2014 AGeorgia Quinn, a securities attorney specializing in the crowdfunding field, has joined the firm of Ellenoff, Grossman & Schole.  Quinn, a Senior Contributor to Crowdfund Insider, has been a champion of new forms of finance and widely recognized for her support of the emerging crowdfunding sector of the finance industry.

Quinn was recognized in 2014 as a Top Female Attorney in New York City by Thomson-Reuters. Quinn will be joined by other honored attorneys in a special section about “Super Lawyers” to be featured in the New York Times next March. Wealthforge, an early entrant in the crowdfunding space, has called Quinn one of the top influencers in the private placement industry.

Quinn notably championed a unique legal service at her previous firm of Seyfarth Shaw.  Disclosure Dragon was an automated service that assisted in the creation of disclosure documents.  The forward thinking service had been mentioned in numerous publications for its entrepreneurial approach in an industry that can be slow to adapt. The service was designed to lower costs for issuers disrupting a traditional service by the legal industry.

Quinn is also now co-founder and CEO of LawBot, a new legal technology company focused on the needs of small business and startup entrepreneurs and the changing legal landscape. Lawbot will be offering a new disclosure technology iDisclose, which will assist in the automated generation of legal and disclosure documents for private securities offerings.

Renaud Laplanche and Georgia QuinnA highly regarded thought leader and speaker in the crowdfunding space, Quinn has interviewed many crowdfunding leaders in North America and the United Kingdom.

Quinn has a Juris Doctor from Columbia Law School and received a Bachelor of Fine Arts from New York University. She is admitted into practice law in the State of New York.  She now joins prominent crowdfunding advocate Doug Ellenoff at his namesake firm.


Doug Ellenoff to Receive “Crowdfunding Visionary Award” at Annual Convention

Doug EllenoffAttorney and crowdfunding trailblazer Doug Ellenoff, from law firm Ellenoff Grossman & Schole, will be receiving the 2014 Crowdfunding Visionary Award to be presented at the 3rd Annual Global Crowdfunding Convention and Bootcamp taking place in Las Vegas this October.

A note from organizers stated that Ellenoff is being recognized as a worldwide thought leader and expert on the nuanced legalities of the JOBS Act. He has been a key representative and advocate for the fast growing industry. Along with his law firm, Ellenoff has taken a leadership role in the emerging crowdfunding industry unlike any other law firm in the United States.

Ellenoff and his firm captured accolades for the fact that when no other law firm would “have its brand identified with crowdfunding, Douglas and his firm hosted the first crowdfunding conference on April 19, 2012, and have attended most of the SEC and FINRA meetings on Title III”.  Ellenoff has been a well known spokesperson for crowdfunding and is a regular speaker on the subject not only in North America – but around the globe. 

Doug Ellenoff and Kim WalesEllenoff is described as being instrumental in “guiding and advising many crowdfunding organizations such as the CFPA and CFIRA and so many of the new industry leaders and their companies that we would need an entire page to mention them all”.

Previous recipients include Sherwood Neiss, Jason Best and Zak Cassady Dorion of Crowdfund Capital Advisors back in 2012 and 2013s recipient Congressman Patrick McHenry.

Doug Ellenoff will be presented the award at a special ceremony during the Crowdfunding Convention being held October 23-25th.