ARTICLE
30 May 2017

FINRA Warns Investors About Crowdfunding Offerings Of SAFEs

CW
Cadwalader, Wickersham & Taft LLP

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Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
FINRA warned investors to exercise caution when investing in Simple Agreements for Future Equity ("SAFEs").
United States Corporate/Commercial Law

FINRA warned investors to exercise caution when investing in Simple Agreements for Future Equity ("SAFEs"). A SAFE is an agreement to provide a future equity stake if a particular triggering event occurs. It is a type of security that can present unique risks for investors, particularly in the context of a crowdfunding offering. FINRA's advice echoed SEC guidance from a May 9, 2017  Investor Bulletin. FINRA advised investors to keep the following risks in mind before investing in SAFE offerings:

  • SAFEs are different from common stock in that they do not represent a current equity stake in a company, but instead are agreements to deliver a future equity stake only if a particular triggering event occurs;
  • SAFEs are not standardized and the terms across SAFE offerings are not uniform;
  • SAFEs may have entirely different triggering events;
  • there is no guarantee that a SAFE conversion is ever triggered; and
  • investors should take careful note of (i) conversion terms, (ii) repurchase rights, (iii) dissolution rights and (iv) voting rights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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