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Unsuccessful Closing & Capital Return Protocols ​

In regulated capital markets, most offerings are structured as "Contingency Offerings" (specifically "All-or-None" or "Part-or-None"). This means the issuer is legally forbidden from accessing any investor capital unless a specific Minimum Funding Target is reached by the offering deadline.

If this target is missed, the offering is deemed "Unsuccessful." The investment contracts are voided, and the platform initiates a strict "Return of Funds" procedure governed by SEC Rule 15c2-4.

1. Determination of Failure (The Trigger) ​

The system monitors the offering progress against the deadline. An "Unsuccessful Closing" event is triggered automatically if:

  1. Time Expiration: The deadline passes without reaching the Minimum Target.

  2. Issuer Withdrawal: The issuer voluntarily terminates the offering (e.g., due to market conditions).

  3. Regulatory Halt: A regulator (SEC/FINRA) suspends the offering.

Operational Impact ​

Upon this trigger:

  • Inbound Block: The system immediately disables the "Invest" function.

  • Status Update: The offering status transitions to UNSUCCESSFULLY_CLOSED.

  • Contract Voiding: All pending Subscription Agreements are legally nullified.

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

The return of capital is not merely a platform policy; it is a federal mandate.

The "Prompt Return" Standard ​

  • The Rule: SEC Rule 15c2-4 states that if a contingency is not satisfied, funds held in escrow must be "promptly" transmitted to the persons entitled to them (the investors). The issuer has zero claim to these funds.

  • Execution: The platform instructs the Qualified Custodian or Smart Contract to release the full principal amount back to the investors. No fees are deducted from the investor's principal.

Anti-Money Laundering (AML) Restrictions ​

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

  • Fiat: Funds are returned via ACH/Wire to the originating bank account.

  • Crypto: Funds are returned to the originating wallet address.

  • Risk Control: The system prevents redirecting refunds to third-party accounts to avoid "layering" schemes.

3. Investor Notification & Disclosure ​

Transparency regarding the failure is required under Regulation CF and Regulation D.

Communication Requirements ​

  • Reg CF Rule 304: Issuers must notify investors that the offering has been cancelled and provide a clear timeline for the return of funds.

  • Content: The notification must explicitly state:

    • The reason for termination (e.g., "Minimum Target Not Met").

    • Confirmation that no funds were transferred to the issuer.

    • The estimated refund settlement time (typically 1–3 business days).

4. Record Keeping & Archival ​

Although the deal failed, the data serves as proof of compliance.

  • FINRA Rule 4511: The platform archives the "Unsuccessful Closing" records, including the list of refunded investors and the timestamp of the escrow release. This audit trail proves that the platform adhered to the "No-Touch" rule regarding investor funds.