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Offer Cancellation & Fund Release Protocols ​

In the lifecycle of a securities offering, a "Cancellation" (or Unsuccessful Closing) occurs when the issuer or the platform terminates the raise before the closing conditions are met. This is a common feature of "Contingency Offerings" (e.g., All-or-None deals).

Because investor funds are held in a "Pending" state during the raise, the cancellation process is strictly governed by SEC Rule 15c2-4. This rule ensures that if the deal does not materialize, the issuer cannot access the capital, and 100% of the principal must be returned to the investors.

1. Termination Triggers & Status Updates ​

The termination of an offer triggers a specific state transition in the platform’s ledger, moving the asset from ACTIVE to UNSUCCESSFULLY_CLOSED.

Common Regulatory Triggers ​

  • Failure to Raise (Reg CF Rule 304): The offering failed to reach its "Minimum Target Amount" by the statutory deadline.

  • Regulatory Intervention: The platform identifies a compliance issue with the issuer or the asset.

  • Issuer Withdrawal: The issuer voluntarily withdraws the offering due to market conditions (Reg D).

Operational Impact ​

Upon confirmation of cancellation:

  1. Inbound Block: The "Invest" button is disabled immediately.

  2. Contract Voiding: All pending Subscription Agreements are legally voided.

  3. Portfolio Update: The investment is removed from the investor's "Active Portfolio" and archived under "Inactive/Cancelled."

2. The Refund Mandate (SEC Rule 15c2-4) ​

The core compliance activity during a cancellation is the return of funds.

The "Prompt Return" Standard ​

  • The Rule: SEC Rule 15c2-4 mandates that if a contingency is not met, funds held in escrow must be "promptly" transmitted to the persons entitled to them (the investors).

  • The Process: The platform triggers a Batch Refund Protocol.

    • Fiat (Escrow): Instructions are sent to the Qualified Custodian to release funds back to the originating bank accounts.

    • Crypto (Smart Contract): The cancelOffering() function is called on-chain, allowing investors to withdraw their stablecoins immediately from the contract vault.

Anti-Money Laundering (AML) ​

To comply with FINRA Rule 3310, refunds are strictly processed to the Original Payment Method.

  • If the investor paid via Wire, funds are wired back.

  • If the investor paid via Wallet, funds are credited back to the Wallet ledger.

  • Funds are never redirected to a third-party account.

3. Communication & Disclosure ​

Investors must be informed of the "Negative Outcome" to close the loop on their financial commitment.

Notification Requirements ​

  • SEC Rule 10b-10: Requires disclosure of the final status of the transaction.

  • Content: The notification must explicitly state:

    • The reason for cancellation (e.g., "Minimum Goal Not Met").

    • The estimated timeline for the refund (typically 1–3 business days for banking networks).

4. Record Keeping & Archival ​

Although the deal did not close, the data cannot be deleted.

  • FINRA Rule 4511: The platform must retain records of the cancellation, the reason for termination, and proof of the refund for a minimum of six years. This creates an audit trail proving that the issuer never took possession of the funds.