Title 17

SECTION 227.301

227.301 Measures to reduce risk of fraud.

§ 227.301 Measures to reduce risk of fraud.

An intermediary in a transaction involving the offer or sale of securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) must:

(a) Have a reasonable basis for believing that an issuer seeking to offer and sell securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) through the intermediary's platform complies with the requirements in section 4A(b) of the Act (15 U.S.C. 77d-1(b)) and the related requirements in this part. In satisfying this requirement, an intermediary may rely on the representations of the issuer concerning compliance with these requirements unless the intermediary has reason to question the reliability of those representations;

(b) Have a reasonable basis for believing that the issuer has established means to keep accurate records of the holders of the securities it would offer and sell through the intermediary's platform, provided that an intermediary may rely on the representations of the issuer concerning its means of recordkeeping unless the intermediary has reason to question the reliability of those representations. An intermediary will be deemed to have satisfied this requirement if the issuer has engaged the services of a transfer agent that is registered under Section 17A of the Exchange Act (15 U.S.C. 78q-1(c)).

(1) Has a reasonable basis for believing that the issuer or any of its officers, directors (or any person occupying a similar status or performing a similar function) or beneficial owners of 20 percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power, is subject to a disqualification under § 227.503. In satisfying this requirement, an intermediary must, at a minimum, conduct a background and securities enforcement regulatory history check on each issuer whose securities are to be offered by the intermediary and on each officer, director or beneficial owner of 20 percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power.

(2) Has a reasonable basis for believing that the issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection. In satisfying this requirement, an intermediary must deny access if it reasonably believes that it is unable to adequately or effectively assess the risk of fraud of the issuer or its potential offering. In addition, if an intermediary becomes aware of information after it has granted access that causes it to reasonably believe that the issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection, the intermediary must promptly remove the offering from its platform, cancel the offering, and return (or, for funding portals, direct the return of) any funds that have been committed by investors in the offering.

(d) Have a reasonable basis for believing that an issuer seeking to initiate an offering of securities between May 4, 2020, and February 28, 2021, in reliance on section 4(a)(6) of the Securities Act through the intermediary's platform on an expedited basis due to circumstances relating to COVID-19 that has previously sold securities in reliance on section 4(a)(6) of the Securities Act has complied with the requirements in section 4A(b) of the Act (15 U.S.C. 77d-1(b)) and the related requirements in this part. In satisfying the requirement in this paragraph (d), an intermediary may rely on the representations of the issuer concerning compliance with the requirements in this paragraph (d) unless the intermediary has reason to question the reliability of those representations.

(e) Have a reasonable basis for believing that an issuer seeking to initiate an offering of securities between March 1, 2021, and August 28, 2022, in reliance on section 4(a)(6) of the Securities Act through the intermediary's platform that is relying on § 227.201(bb) and that has previously sold securities in reliance on section 4(a)(6) of the Securities Act has complied with the requirements in section 4A(b) of the Act (15 U.S.C. 77d1(b)) and the related requirements in this part. In satisfying the requirement in this paragraph (e), an intermediary may rely on the representations of the issuer concerning compliance with the requirements in this paragraph (e) unless the intermediary has reason to question the reliability of those representations.

[80 FR 71537, Nov. 16, 2015, as amended at 85 FR 27132, May 7, 2020; 85 FR 54490, Sept. 2, 2020; 86 FR 3592, Jan. 14, 2021] Effective Date Notes:At 85 FR 27132, May 7, 2020, § 227.301 was amended by adding paragraph (d), effective May 4, 2020, through Sept. 1, 2021. At 85 FR 54490, Sept. 2, 2020, § 227.301 paragraph (d) was amended by removing the date “August 31, 2020” and adding in its place the date “February 28, 2021”, effective Aug. 31, 2020 through Sept. 1, 2021.

2. At 86 FR 3592, Jan. 14, 2021, § 227.301 was amended by adding paragraph (e) effective Jan. 14, 2021 through Mar. 1, 2023.