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Material Changes & Reconfirmation Protocols ​

In securities law, a "Material Change" is defined as any information that would significantly affect a reasonable investor's decision to invest. Common examples include a change in the share price, the loss of a key executive, a shift in the company's business model, or an extension of the offering deadline.

Examples of material change include: Deal-related changes, such as maximum offering amount, terms of the security, or offering deadline. When such an event occurs during an active raise, the original "Investment Thesis" is considered void. Consequently, securities regulations mandate a strict Reconfirmation Workflow to ensure that previous commitments remain valid under the new terms.

1. Regulatory Disclosure Requirements ​

The issuer is legally obligated to file an amendment and notify all current investors immediately. The specific obligations vary by exemption type:

Regulation CF (Rule 204) ​

  • The Mandate: Under SEC Rule 204, if a material change occurs, the issuer must file an amendment (Form C/A).

  • The Timer: Investors must receive a notification and be given five (5) business days to reconfirm their investment.

  • The Consequence (Negative Consent): If the investor does not affirmatively reconfirm within the window, their investment is automatically cancelled. Silence cannot be interpreted as consent; the investor must explicitly opt-in to the new terms.

Regulation A+ (Rule 253) ​

  • The Mandate: SEC Rule 253(g) requires the filing of an Offering Circular Supplement (Form 253G2).

  • Notification: The amended circular must be delivered to all subscribers. While Regulation A+ mechanics differ slightly from Reg CF, best practices enforce a similar "Right of Withdrawal" to prevent anti-fraud liability.

Regulation D (Rule 502/506) ​

  • The Mandate: While less prescriptive regarding "timers," Rule 10b-5 (Anti-Fraud provisions) dictates that issuers must disclose all material facts. Failing to inform investors of a change prior to closing constitutes securities fraud.

2. The Reconfirmation Workflow ​

To comply with these statutes, the investment lifecycle enters a "Suspended State" when a Material Change is flagged.

Step 1: The Notification (Disclosure) ​

The offering is locked, and a Material Change Notification is dispatched to all investors with pending commitments.

  • Content: The notification details the specific change (e.g., "Deadline Extended") and provides a secure link to the Reconfirmation Dashboard.

  • Status: All associated investments transition to a PENDING_RECONFIRMATION status.

Step 2: The Grace Period ​

The investor is provided a statutory window (typically 5 business days) to review the new information.

  • Reminder Protocol: To ensure the investor is aware of the impending deadline, a high-priority reminder is sent 24 hours before the window closes.

Step 3: Resolution ​

  • Reconfirmation: If the investor provides affirmative consent, the investment status returns to CONFIRMED. The funds remain in escrow.

  • Timeout (Cancellation): If the deadline passes without action, the system interprets this as a rejection of the new terms. The investment is cancelled automatically.

3. Refund Compliance (SEC Rule 15c2-4) ​

If an investment is cancelled due to a failure to reconfirm, the return of funds is mandatory and immediate.

  • Escrow Release: In accordance with SEC Rule 15c2-4, funds held in escrow are "contingent" on the final closing. Since the investment contract is voided, the issuer has no claim to these funds.

  • Execution: The system triggers a refund request to the Escrow Agent or Smart Contract to return the principal amount to the investor's original payment source.