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Maine Crowdfunding - Is Your Business a Good Candidate?

The following was authored by Gregory Fryer and Elizabeth Riotte and was originally distributed by Verrill Dana's Securities Law Group as a client alert.

The Maine Office of Securities has published a Maine crowdfunding rule that goes into effect on January 1, 2015. New Rule 523 – entitled “Rule Regarding Short-Form Seed Capital Registrations”1 – can be found at MOOS’s home page: The rule allows a Maine-based company to seek up to $1,000,000/year of new capital through a broadly disseminated offering – such as through Internet social media sites, Internet advertising, a securities broker-dealer, or the company’s own website. The rule is somewhat fussy, and in each case requires that a registration statement be filed and cleared by MOOS before any solicitations begin. The short-form registration statement is built around a company business plan and a detailed set of financial statements, supplemented with a Q&A format disclosure document covering a range of topics. Securities can be sold under this registration only to Maine residents, and there is a $5,000/year cap on the amount any one person can invest (unless the person has sufficient wealth or income to be an “accredited investor,” as defined). All subscription proceeds must be impounded with a bank until a company-specified minimum dollar amount has been raised. The company must also specify a maximum dollar amount to be raised (not exceeding 3.33 times the minimum).

Who is a good candidate for using the new Maine crowdfunding rule? We will know better as people gain experience with this, but in our judgment the following factors will be important:

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Financial Institutions . . . In the News

  • Amanda Rector, Maine state economist predicts a stronger economy with job growth for 2015.  (Sun Journal 1.8.2015)
  • Charles Colgan, USM economist cautions Maine businesses and policymakers on Maine’s future workforce.  (PPH 1.8.2015)
  • Chip-coded credit cards provide extra level of security.  Unlike Europe, PIN numbers in the US will not be required.  (MPBN 1.5.2015)
  • CetoLogic’s Deposit Reclassification lowers reserve balance requirements by the Federal Reserve making lending funds available.  (Business Wire 1.6.2015)
  • Start-up credit Union, Maine Harvest, is working towards its state charter and obtaining NCUA insurance.  (Credit Union Times 1.7.2015)
  • TruChoice Federal Credit Union and the Portland Police Department Federal Credit Union merged in early December.  (Mainebiz 1.6.2015)
  • The National Association of Federal Credit Unions (NAFCU) sent a letter to Congress asking for regulatory relief.  (The Hill 1.6.2015)
  • President Andrew Silsby becomes President and CEO of Kennebec Savings Bank.  (Mainebiz 1.5.2015)
  • Bob Montgomery-Rice became President of Bangor Savings Bank in January 2015.  (Mainebiz 12.17.14)

Financial Institutions . . . In the News

  • The FBI is asking for the public’s help through its tip line that targets public corruption starts up in Maine and other states.  (BDN 12.15.14)
  • Federal Reserve Chair Janet Yellen does not plan to raise rates in the first four months of 2015.  (PPH  12.18.14)
  • Rate hikes by Federal Reserve are not expected for immediate future.  (PPH 12.16.14)
  • $50 million in bonds approved by Maine voters await Governor release.  (The Bond Buyer 12.12.14)
  • Northeast Bank hired 9 experienced bankers to expand its small-business loan division that will issue millions of dollars across the country.  (PPH 12.11.14)
  • Sen. Elizabeth Warren, in opposition to the $1.1 trillion government funding bill, campaigned to defeat the bill.  (The Hill 12.10.14).
  • Consumers bullied out of millions by scammers claiming to be the police.  (BDN 11.24.14)

Financial Institutions . . . In the News

  • Median home prices dropped slightly and home sales increased by 26 percent in October.  (BDN 11.20.2014)
  • Personal income in Maine has its sharpest rise in Aroostook County.  (Central Maine 11.20.2014)
  • Ocwen Financial is being sued by homeowners for illegal fees and unfair treatment.  (MPBN 11.18.2014)
  • Large economic growth predicted in southern Maine by NBT Bank Maine President John Watt.  (PPH 11.18.2014)
  • NBT Bank opens regional headquarters at 245 Commercial Street in Portland.  (Mainebiz 11.4.2014)
  • Nation-wide average of completed foreclosures deceased by almost one third since September 2013.  (Housing Wire 10.29.2014)
  • Bond-buying program by the Federal Reserve ends as the economy improves.  (PPH 10.29.2014)
  • GM Financial subpoenaed in investigation of its subprime auto finance business.  (BDN 10.25.2014)
  • Apple Pay duplicated nearly 1,000 Bank of America transactions in error.  (News Maine 10.25.2014)

New England Financial Institutions Face Increased Cybersecurity Risks

Noted cyber security blogger and journalist Brian Krebs recently gained an exclusive interview with a New England bank that reported a sharp rise in fraudulent charges on debit cards. The scammers were making purchases on stolen card numbers from plain-old magnetic strip cards but making them look like they were made on EMV (“chip”) cards, although the bank had not yet issued such cards. This “EMV-spoofing” technique had been picked up by Canadian banks earlier this year and traced to Brazil.

“The recent EMV-spoofing cases point to the continued need for fraud detection mechanisms that even small banks and credit unions must implement to protect themselves,” said Ande Smith, a principal at the forensics and data security firm Deer-Brook, with whom Verrill Dana works closely in data breach cases. “During the transition phase, which may take years, the mish-mash of magnetic and chip/pin point-of-sale systems in the US will create opportunities to mask fraudulent activity.”

A recent report by the Federal Financial Institutions Examination Council (FFIEC) supports this call for improved risk management at regional banks and other financial Institutions.  The results of the FFIEC’s 2014 survey of 500 community financial institutions indicate that these institutions have room to improve in terms of employee education and training on cyber risks; improving cybersecurity controls; understanding their vendors’ cybersecurity risks; and establishing incident management procedures, among other things.

Rita Heimes is a privacy and cybersecurity attorney in Verrill Dana’s Intellectual Property & Technology practice group. She and her team help companies with comprehensive information risk management programs including privacy policies, incident response plans, third-party contracts, employee training, and breach response.