offering and/or that the disclosure provided to investors contains
Offering documents are overly simple – The proposed form of
offering document is overly simplistic and has no instructions or
sample offering document that allows issuers to understand the
level of detail required. For example, although there is a section for
disclosing how the money will be used, there is no requirement to
include a budget or business plan with any details. Investors would
also be interested to know if management is paying themselves
a salary and that management has a clear understanding of the
costs of execution, neither of which are required. Additionally,
there is also a section that requires an issuer to identify the risks
of investing without parameters to be followed. It is not clear
what level of disclosure is required and whether management of
a start-up would have the knowledge and experience to provide
sufficient disclosure to ensure there is no misrepresentation or
omission of important risk factors.
Use of videos and investor questions and comments – It is not
clear whether and how video presentations and investor questions
and comments will be regulated on a portal other than the right to
sue if any verbal statements contain a misrepresentation. What if
additional information is provided to investors in a video about the
issuer or through a blog comment and answer post on the portal’s
website that is not disclosed in the issuer’s offering document?
Does that mean the offering document by definition includes a
misrepresentation? It is also not clear what liability a portal will
have, if any, if there is a misrepresentation.
Saskatchewan-only approach - It appears that Saskatchewan
is more interested in being the first jurisdiction in Canada to allow
a specific equity Crowdfunding exemption rather than working
to harmonize or nationalize such an exemption with other CSA
members. However, Ontario is effectively doing the same thing
with its proposed equity Crowdfunding exemption and perhaps
a nationalized and/or harmonized approach may simply take too
long, so faulting Saskatchewan for going it alone may not be fair.
No FCAA monitoring or compliance plan – The FCAA stated in
its July 2013 concept proposal that it would establish a monitoring
and compliance plan but it has not provided any further details.
This is important for issuers and portals so they can assess the
expectations of the regulators before they set up a portal or do an
offering on the portal.
So what does the Proposed Exemption mean for EMDs?
Many exempt market dealers (EMDs) may not be interested
in the Proposed Exemption since many EMDs are not involved
in the funding of start-ups. In the eco-system of capital raising,
start-ups are often left to find capital from their family and friends
or an angel investor if they are lucky, so a portal would provide
greater access to capital for these ventures. However, if a fraud is
perpetuated through these unregulated funding portals, it would
have an immediate negative impact on participants in the exempt
market, including EMDs. A strong case can be made that portals
in Saskatchewan should be regulated as a type of ‘restricted
dealer’, similar to how Ontario provided MaRs VX with exemptive
relief in June 2013 to operate an online funding portal matching
accredited investors with social impact issuers.
What do you think?
Please let us know your questions, comments or concerns
about the Proposed Exemption. Please share them with the EMDA
and also please communicate them to Dean Murrison, Director,
Securities Division, Financial and Consumer Affairs Authority
of Saskatchewan at (306) 787-5842 or fax to (306) 787-5899 or
For more information contact:
firstname.lastname@example.org | 416.860.2955
The contents of this article do not constitute legal advice and is provided for
information purposes only. This article does not necessarily reflect the opinions of
Cassels Brock & Blackwell LLP or any of its lawyers or clients or those of the Exempt
Market Dealers Association of Canada. The content of this article is not intended to be
used as a substitute for specific legal advice or opinions.