Suppose a small private firm runs a bona fide online contest in which the prize is shares of common stock of that firm. Would such a contest violate federal and/or state securities laws forbidding (non-exempt) offers and sales of securities?
Possibly relevant: The firm benefits greatly from the contest entries, e.g., it might be a singing contest and the firm broadcasts entrants' performances on the web and obtains advertising revenue. To the extent possible, all state contest laws are followed (but maybe some state's laws preclude such a prize in a contest??).
Thank you, law gurus.
Answer
No securities lawyer is going to give you a "thumbs up" to such a stock-issuance concept. First, what do you mean by a "small, private firm?" The minute you start issuing shares to successful contestants, the firm is no longer private. Issuing shares to strangers who haven't received detailed offering circulars or prospectuses is also highly regulated at both the state and federal level. This sounds like an illegal scheme from a securities law perspective; it also seems likely that the contest might be illegal itself even if the prizes were cash, not stock. You should form a relationship with a securities law firm to counsel you of how securities may be sold, and to whom, and with what preliminary disclosures. It is very complicated, and in addition to federal rules, the issuer must comply with the laws of various states where the acquirers may reside.
No comments:
Post a Comment