One of the salient features of American
securities law is investor protection.
The U.S. government does not want the unscrupulous businessman taking
advantage of the uninformed financial backer.
This policy applies broadly across all industries, including Hollywood,
preventing the Max Bialystocks and the Leo Blooms of the world (see Mel Brooks’ The Producers) from preying on unsuspecting investors.
Due to the restrictive nature of federal
securities law, some filmmakers rely on alternative methods of financing, such
as crowdfunding, to avoid the regulatory requirements and expenses of issuing
securities. This creates a challenge for
producers because they must rely on the altruism of others who contribute
financially to a project without the possibility of a monetary return. For example, Zach Braff’s Wish I Was Here received $3,105,473 in
funding from 46,520 backers via Kickstarter.
The Securities and Exchange
Commission recently changed the landscape of film financing by passing
Regulation A+ (or “Reg A+”), which will allow filmmakers an alternative way to offer
securities. As with many other American
securities laws, there are limitations regarding the offering (it cannot exceed
$50 million within a 12 month period) in addition to disclosure and reporting
requirements that accompany the Reg A+ issuance; however, despite these
regulatory hurdles, filmmakers now have a new avenue for film financing, in
addition to those already available, such as Kickstarter.
To read more on these
developments and the specific requirements of Reg A+, visit:
http://www.hollywoodreporter.com/news/want-a-piece-movie-profits-797845
To read more about Zach Braff’s
Kickstarter campaign, visit:
https://www.kickstarter.com/projects/1869987317/wish-i-was-here-1
Ross
A. Carbone, Esq. is an associate in the Corporate, Securities & Business
Transactions practice group of the law firm of McCarter & English, LLP.