Crowd-funding Site Named In SEC Proceeding
Raising capital through crowd-funding is one of the key provisions of the JOBS Act. It is supposed to facilitate raising small amounts of capital for start-up operations. An off-shore crowd-funding site that sold unregistered securities to U.S. citizens, however, ran afoul of the registration provisions of the Securities Act. In the Matter of Eureeca Capital SPC, Adm. Proc. File No. 3-146265 (November 10, 2014).
Eureeca Capital, a Cayman Islands company, operates an online, securities-based crowd-funding platform. It has never been registered with the SEC. The firm initiated its online, securities-based platform in May 2013. Through the platform issuers are connected with investors to raise funds in exchange for equity. The securities offered are from non-U.S. based issuers.
The securities offered are reviewed by Eureeca which has an applications committee and a third party compliance agency, according to the site. Information about the issuers is available on the site. For example, an informational video about the offering is available as well as data regarding the amount of the offering being made by the issuer. Visitors to the side can review this information. Those who register have access to additional information. Registration only requires basic information about the person such as name, address, date of birth and similar data. There are no financial requirements such as those for being an accredited investor under U.S. law.
The site specifies that the securities are not being offered to U.S. persons. The firm did not have any compliance procedures designed to prevent U.S. persons from registering. As of May 2014 about 50 U.S. persons were registered on the site, according to the Order.
To purchase securities through the site, the funds had to be wired to Eureeca. If the offering was not fully funded, the investor funds were returned, according to the site. If the offering funded the transaction was completed – the investor cash went to the company and the investor received securities. The site received a percentage of the funds.
In 2013 Eureeca accepted funds from three U.S. persons for offerings. Each investor provided verification of citizenship and residence. While Eureeca did not take steps to verify that the investors were accredited, two of the U.S. investors certified that fact in e-mail prior to the offerings.
The three U.S. persons invested about $20,000 in four separate offerings through the website. The Order alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a).
To resolve the proceeding, Eureeca consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the firm agreed to pay a civil penalty of $25,000. In resolving the proceeding, the Commission considered the prompt voluntary cooperation of the company and its remedial actions.