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May 09, 2017 at 11:23 AM
The Securities and Exchange Commission is monitoring a troubling trend arising out of its Regulation Crowdfunding – the use of a new startup-financing instrument, the so-called “SAFE,” in offerings that are intended for a broad, mostly retail base of investors, SEC Commissioner Michael Piwowar said Tuesday.
Speaking at the North American Securities Administrators Association’s and SEC annual Section 19(d) Conference, (held just before NASAA’s annual public policy conference), Piwowar stated that SAFE, which stands for a “simple agreement for future equity,” is an agreement “between an investor and a company in which the company generally promises to give the investor a future equity stake in the company if certain triggering events occur.”
While these SAFE securities have been used in some Reg CF offerings, “they are not securities with which many retail investors are well acquainted,” Piwowar said.
“An investor only receives an equity stake in a SAFE company if the specific terms of the security are met. If the terms are not met, the investor is left with nothing.”
As an additional element of risk, he continued, “the terms governing whether and when an investor may receive the future equity vary from offering to offering. In short, despite its name, a so-called SAFE is neither ‘simple’ nor ‘safe.’”
To help educate investors about the potential risks associated with SAFE offerings, the SEC’s Office of Investor Education and Advocacy released the same day an investor bulletin regarding these instruments.
