Patent ID: 12243098

Additionally, the System provides investors in 506(b) offerings electronic access to issuer's management or shareholder relations, as well as levying restrictions for general solicitation on the issuer. The inclusion of 506(b) offerings with 506(c) offerings in the System creates further options and flexibility for the issuer to raise capital, and allows for additional market participants.

DETAILED DESCRIPTION OF EXEMPLARY IMPLEMENTATIONS

The present invention provides an automated, closed loop stock exchange system for trading restricted securities in publically traded companies. The Restricted Shares Trading System (RSTS) (alternatively referred to herein simply as the “System”), includes: (a) a system operator; (b) an automated bidder qualification means, wherein a bidder is designated a qualified bidder upon meeting bidder qualification criteria set by the system operator; (c) means for accepting and storing a submitted bid from the qualified bidder; (d) means for accepting and storing a sell offer from a primary or secondary seller; (e) an automated bid and offer evaluation means, wherein the submitted bid is evaluated against bid criteria set by the system operator; (f) an automated compliance means, wherein the submitted bid and offer is evaluated against compliance criteria set by the system operator; (g) an automated submitted bid and offer adjustment means, wherein the submitted bid and offer is modified pursuant to criteria set by the system operator; (h) an automatic feedback means, wherein the qualified bidder, primary or secondary seller is informed if the qualified submitted bid is accepted; (i) an automated feedback means, wherein investor; primary and secondary seller are electronically alerted to status of their bid or offer pursuant to criteria set by the system operator; (j) an automated feedback means wherein investor; primary and secondary seller are electronically alerted to the presence and status of counter bids and offers pursuant to the criteria set by the system operator; and (k) an automatic transaction means to effectuate the accepted transaction.

In order to gain an appreciation of the present invention, it is necessary to understand various exemptions from the federal securities laws regarding the registration of offerings of securities. As will be apparent to those skilled in the securities trading industry, the implementation of the present invention takes advantage of particular exemptions; namely, Rule 504, Rule 505 and Rule 506, exemptions.

Briefly, Rule 505 allows a company to raise an aggregate amount of $5,000,000 over a twelve-month period. Similar to Rule 504, Rule 505 does not permit an issuer to use general advertising and solicitation to market its offering. A Rule 505 offering is available to an unlimited number of accredited investors and up to a maximum of thirty-five (35) non-accredited investors. In a Rule 504 offering, an unlimited number of non-accredited investors may participate. Unlike a Rule 504 offering, non-accredited investors must receive a substantive disclosure document that includes financial statements, although even if only accredited investors are involved, care must be taken such that anti-fraud requirements are met and that there are no false statements, no misleading statements, and no omissions that might make what you have disclosed misleading. Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or an exemption.

On the other hand, Rule 506 contains no limit on the amount of capital that can be raised in an offering. Similar to other exemptions, an issuer using Rule 506 cannot use general advertising or general solicitation to market its offering. Rule 506 is available to an unlimited number of accredited investors and up to thirty-five (35) non-accredited investors. Unlike Rule 505, all non-accredited investors, either alone or via a purchaser representative, must be sophisticated. That is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. Just as with Rule 505, non-accredited investors must receive a substantive disclosure document that includes financial statements, although even if only accredited investors are involved, care must be taken such that the anti-fraud requirements are met and that there are not false statements, no misleading statements, and no omissions that might make what you have disclosed misleading. Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or exemption.

With regard particularly to Rule 506(c) of Regulation D, Section 201(a) of the JOBS Act requires the SEC to eliminate the prohibition on using general solicitation under Rule 506 where all purchasers of the securities are accredited investors and the issuer take reasonable steps to verify that the purchasers are accredited investors. To implement Section 201(a), the SEC adopted paragraph (c) of Rule 506. Under Rule 506(c), issuers can offer securities through means of general solicitation, provided that: (1) all purchasers in the offering are accredited investors; (2) the issuer takes reasonable steps to verify their accredited investor status; and (3) certain other conditions in Regulation D are satisfied. Rule 506(c) sets forth a principles-based method of verification which requires an objective determination by the issuer (or those acting on its behalf) as to whether the steps taken are reasonable in the context of the particular facts and circumstances of each purchaser and transaction. Among the factors that an issuer should consider under this method are: (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be; (2) the amount and type of information that the issuer has about the purchaser; and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as the minimum investment amount. Rule 506(c) specifically includes a non-exclusive list of verification methods that issuers may use, but are not required to use, when seeking greater certainty that they satisfy the verification requirement with respect to natural person purchasers. This non-exclusive list of verification methods consists of: (1) verification based on income, by reviewing copies of any IRS form that reports income, such as Form W-2, Form 1099, Schedule K-1 of Form 1065, and filed form 1040; (2) verification of net worth, by reviewing specific types of documentation dates within the prior three months, such as bank statements, brokerage statements, etc.; (3) a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant stating that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the last three months and has determined that such purchaser is an accredited investor; and (4) a method for verifying the accredited investor status of persons who had invested in issuer Rule 506(b) offering as an accredited investor before Sep. 23, 2013 and remain investors of the issuer. Rule 506(b) remains unchanged following the adoption of Rule 506(c) and continues to be available for issuers that wish to conduct a Rule 506 offering without the use of general solicitation or that do not wish to limit sales securities in the offering to accredited investors.

According to an implementation, the system incorporates a method including steps for qualifying bidders, using various automated qualifying criteria. An automated bidder qualification means comprises a means for accepting and storing certain bidder information and comparing bidder information with bidder qualification criteria. The present invention contemplates a variety of qualification criteria as determined by statutes, regulations, policies, and the discretion of counterparties. Preferably, the method incorporates an automated online bidding and offering process for restricted securities, and an automated compliance determination step. Preferably, the system incorporates an adjustable formula for aiding with the bidding or offering of restricted securities based on a real time, streaming percentage discount of the price of restricted securities to the price of the corresponding free trading shares, as set by the system operator. Furthermore, the system may incorporate an adjustable formula for aiding with bidding and offering restricted securities based upon a real time streaming percentage discount of the price of restricted securities to a trailing moving average of the corresponding free trading shares as set by the system operator. Preferably, processing occurs in real time, facilitating information exchange, valuation and auction. In an aspect, the system comprises a reward system for bidding and closing a transaction.

The system may incorporate a process by which the buyer and seller settle on a price and effectuate a transaction between the bid and offer prices for a restricted security. Optionally, the method may incorporate a secondary loop for resale of purchased restricted securities (seeFIG.1). The system operator may be an individual or a computer algorithm utilizing a set of criteria data used in system evaluation. The system and method contemplate a variety of criteria data as detailed herein and as described in the literature, statutes, regulations and policies as they relate to trading, reporting and dissemination of restricted securities. The submitted bid information may be accepted and stored in the system in association with bidder information for the purpose of automatically cross-referencing bidder limitations and eligibility according to rules and regulations. The submitted bid may be evaluated against compliance criteria set by the system operator, preferably wherein processing occurs in real time, facilitating information exchange, valuation and auction and bidding.

Issuer Registration: The Issuer establishes log-in information and logs on to registration screen, wherein the Issuer provides corporate documents as required in accordance with a preferred implementation. A checklist may be displayed on the registration screen from which issuer accesses document requirements. Furthermore, the issuer may upload required information directly to this screen. Document requirements may include, by way of example, but not limitation: audited financial statements; most recent corporate filings; certificate(s) of good standing, “bad actor” questionnaire(s), and other related documents that evidence the fact that the issuer is current with filings and is in good standing according to rules and regulations set forth by applicable governing bodies. Here, the Issuer represents that all public information is current, provides contact information for his transfer agent and corporate counsel, provides director's resolution authorizing the offering of securities pursuant to Regulation D and quantity of the share offering, and provides information regarding currently active offerings if any.

Preferably, the Issuer provides authorization for the present system to electronically link issuer's transfer agent account. Electronic link is established to issuer's account at the transfer agent or, alternatively, to issuer's account at transfer agent's contracted third party designee. The link to Issuer's transfer agent account allows the present system to electronically monitor and utilize information that is necessary to automate many system integrated functions, as well as monitor Issuer's corporate affairs for the purpose of confirming compliance. The link establishes a communication link for the free flow of information between the system and transfer agent. Information in issuer's transfer agent account may include, for example, streaming shareholder list and ownership, issuances, account balances and transactions, corporate filings, shares remaining in an issuance and updated share count, by way of example. This also serves as a means for referencing and cross-referencing offers and parties involved in the offer, determining whether they are compliant, and whether any filings are required. Preferably, share float and change of share ownership, for parties within the system, are continuously or regularly monitored.

Additionally, automated electronic communication between corporate counsel and transfer agent may be established and maintained through the transfer agent's link with the system. Importantly, the electronic communicative link to the issuer's transfer agent account allows the transfer agent and the system to process, cross-reference and record, all aspects of the Regulation D offering to the transaction, through the holding period and, ultimately, up to the share registration. Beneficially, this is accomplished automatically and in real time, thereby circumventing conventional arduous requirements associated with the preparation of paperwork, and manual requests, approvals and filings.

The system may establish an electronic communication link with issuer's corporate counsel. Counsel establishes log-in information in order to establish a communication link to a dedicated page within the system. Counsel's page includes a list of clients of counsel that are currently offering shares within the system. In an exemplary implementation, the page contains a prompt for Regulation D and/or Rule 144 documents for a specific issuer's current offering. Furthermore, the page may contain a list of individual transactions within a specified offering.

The issuer may incorporate a single offering through the system in conjunction with outside placement agents. In that case, the system functions as a member of a selling group or distribution participant. Investing parties within the system are the only participants of the offering permitted to resell or hold/maintain the shares within the system. Alternatively the system may preclude the issuers from utilizing the services of outside agents during a particular offering within the system. In all scenarios, the system preferably utilizes streaming information, accessed via the issuer's transfer agent and linked to their account, to automatically determine, and in some cases implement, filings and restrictions pursuant to governing rules, regulations and issuer designations. If non-accredited investors are granted permission to participate in an offering pursuant to Rule 504, Rule 505 or Rule 506(b) of Regulation D—as opposed to Rule 506(c) of Regulation D—the system will necessarily be the exclusive placement agent, contemplating a relatively low quantity of non-accredited investors permitted to participate in a Rule 505 or Rule 506(b). The non-accredited participants are counted by the system in substantially real time and preferably limited to a maximum of thirty-five (35) investors. For the purpose of making restricted securities (RS) investments available to non-accredited investors, pursuant to Rule 504, Rule 505 or Rule 506(b), the system determines eligibility by programming and utilizing modified parameters pertaining to investment experience, risk tolerance, and income net worth. An investment screen is available for listing securities that are currently available for investment by non-accredited investors (FIG.88). The list also includes the number of non-accredited investors that remain eligible to participate in the RS offering.

Preferably, the Issuer provides information about past or current status as a “blank check” or “shell company.” The Issuer provides company authorization to one or more individuals to operate the system. The Issuer provides authorization to link to its transfer agent, or designated third party, in order to access and stream information as required for the purpose of real-time corporate issuance updates. The Issuer provides authorization to the system for accrediting and qualifying prospective investors, and documents related to the Regulation D offering. If an issue is offered pursuant to Rule 505 or Rule 506(b), the issuer may provide information and authorization for direct electronic contact/communication with the issuer. In contrast, if an issue is offered pursuant to Rule 506(c) of Regulation D, such contact/communication may not be required. Documents may be prepared by, or in conjunction with, personnel within the system. Optionally, documents related to the Reg. D offering are prepared by a third party, reviewed manually, and then an applicant is approved, rejected or receives a “qualified” approval. If the registration process results in a rejection or qualified approval, then the Issuer is informed, via electronic communication means, of reasons for the rejection or qualified approval and, if applicable, additional unmet requirements. Documents are maintained, or otherwise stored, in digital format available to all interested parties upon prompting. Information may be updated directly within the system, or updated via links to the SEC EDGAR system or another designated third party. Documents may be prompted for viewing from a corporate information screen, a quote screen, or a trade screen.

Issuer Dashboard: Upon approval, the Issuer is provided with a password-protected Account screen. Optionally, Issuer may be prompted to authorize the system to qualify prospective investors. The system or issuer may manually designate that the offering proceeds pursuant to Rule 504, Rule 505, Rule 506(b) or Rule 506(c), of Regulation D. As will be abundantly clear to those skilled in the art of securities trading, in light of certain regulations enacted pursuant to the Jobs Act of 2012, Rule 506(c) offerings are contemplated to be the primary basis for use, or implementation, of offerings effected via the present system. However, in the event that the issuer elects to offer shares pursuant Rule 504, Rule 505 or Rule 506(b) of Regulation D, the issuer may determine whether they wish to allow unaccredited investors to participate in the restricted securities (RS) offering. If, for instance, the Issuer determines that unaccredited investors are acceptable, then, for example, up to thirty-five (35) unaccredited investors may be allowed to invest in an offering on the system pursuant to Rule 505 and Rule 506(b) of Regulation D, and unlimited non-accredited investors may be allowed to participate in an offering pursuant to Rule 504. Furthermore, the system is preferably programmed to automatically count down the number of non-accredited investors participating in a particular offering. When the predetermined number (e.g., 35) of unaccredited investors is reached, non-accredited investor's ability to bid on an offering pursuant to Rule 505 or Rule 506(b) of a Regulation D offering is disabled. Optionally, the system contains an investment screen listing RS offers available to non-accredited investors, in accordance with regulations governing Rule 504, Rule 505 and Rule 506(b) of Regulation D (FIG.88). The regulations between these three “safe harbor” designations vary somewhat; however, the system is programmed and otherwise configured, to automatically comply with respective varying regulations. For example, for Rule 505 offerings, the system may monitor a financial value of issuances during a designated period of time. If an unaccredited investor has an unfilled bid for shares, and the threshold of (e.g. 35) unaccredited investors has been achieved, the bid is cancelled and the unaccredited bidder automatically receives an electronic message stating the basis for the cancellation.

Optionally, the Issuer may identify potential investors (e.g., by name or identification number) barred from investing in the issuers restricted securities offering. Issuer is prompted to agree to allow all investors to participate in the offering as per regulations for the designated “safe harbor” exemption, in the event that no investors are barred. Alternatively, an Issuer may block specified investors from purchasing additional shares once they reach a designated share threshold. Furthermore, issuer can optionally designate a threshold to block all investors from purchasing a designated number or percentage of outstanding shares. An Issuer may be prompted to identify parties subject to blackout periods. For instance, in an exemplary implementation, Issuer is prompted to decide whether he desires to electronically receive unsolicited offers for restricted shares during the time period shares are not being offered. Issuers are prompted to choose pursuant to which activity, and by what means, to receive trade or offering alerts, and confirmations by checklist or other means. Messages or alerts may include, by way of example, trade alerts, counter bid alerts, notification that counter bids have been increased or decreased, notification of deficient or expired documents, notification of a private counter offer, notification of the presence of an unsolicited bid, notification of preselected thresholds of percentage of offer placed, notification that an offer has been completed, notification of time remaining until expiration of an offer, and notification of required filings. Optionally, Issuer may prompt the system to automatically provide required auto-populated documents for electronic signature and filing. The issuer is also provided with an option to facilitate filings manually. Furthermore, the Issuer may prompt the system to automatically update, and post to the dashboard, the number of days remaining for a particular offering pursuant to Regulation D, as well as the quantity of shares remaining in the respective RS offer.

Insider or Control Party Registration: An Insider or Control Party (hereinafter referred to generally as ICP) may establish log in information, and subsequently log on to a Registration screen. A checklist may be provided on the registration screen, from which ICP may access document requirements and to which ICP may upload required information. Information may include, for example, general personal information, information pertaining to how shares were acquired, supporting documents and the like. The Insider or Control Party may file a request (with their company) for authorization to allow the system to establish and maintain an electronic link to Issuer's transfer agent account, for instance, if they are not presently linked. An electronic link is preferably established to ICP's company account at a transfer agent, or at a transfer agent's contracted third party designee. Furthermore, this communication link allows the system to: (1) electronically monitor and utilize information necessary to automate many system functions; and (2) monitor ICP's holdings and share sales, for the purpose of compliance. In one exemplary implementation, Insider or Control Parties may be prompted to decide whether they wish to electronically receive unsolicited offers for restricted shares during the time period when shares are not being offered. With regard to receiving trade and/or offering alerts, ICPs are preferably prompted to select an activity type pursuant to which they will receive trade/offering alerts, as well as a means by which they will receive such alerts (e.g., by text, emails, etc.).

Messages or alerts may include, but are not limited to, trade alerts, counter bid alerts, notification of counter bid changes, notification of deficient and/or expired documents, notification of private counter offers, notification of the presence of an unsolicited bid, and notifications of required filings. In an exemplary implementation, an ICP may be prompted to select whether or not ICP wishes to receive, by electronic communication, unsolicited offers for restricted shares during periods of time when shares are not being offered. In an exemplary implementation, ICP may request that the system automatically provide required auto-populated forms for electronic signature. Insider or Control Parties may be provided with an option to facilitate filings themselves. The aforementioned documents may include, for example, SEC Form 3, Form 4, Form 5 and Form 144.

Preparation for Sale of Restricted Insider or Control Party (ICP) Shares: Upon approval, Insider or Control Parties (ICP) may electronically transfer shares from a transfer agent to system. Preferably, prior to sale, ICP files Form 144 with the SEC, either independently or through system.

Insider or Control Party (ICP) Restricted Share (RS) Sales: Market participants designated as Insider and Control Parties (ICPs) are subject to restrictions on restricted stock sales pursuant to Rule 144. The present system is designed and otherwise configured, in addition to providing a market for these securities, to provide a platform to: monitor such sales; automatically update maximum sale information; restrict sales; and remain current with filings. The system automatically integrates streaming information—provided by means of the electronic link with the transfer agent—to calculate maximum share sales in substantially real time according to rules and regulations.

Preparation for Placement of Issue Pursuant to Regulation D: The present system incorporates one or more checklist(s) of legally required documents on a placement page, listing legally required documents for the placement of restricted securities under Securities and Exchange Commission (SEC) Regulation D of the United States Securities Act of 1933. Documents are gathered, uploaded and submitted, to the system for approval. Documents may include, for example, director's resolution, term sheet, private placement memorandum, 8k filing or amendment, Form D, and any other documents required, in accordance with rules and regulations as set forth by applicable governing bodies. In an exemplary implementation, documents are prepared, approved and disseminated, by a qualified third party. In an alternative implementation, documents are prepared, approved and disseminated, within the corporate structure of the system. Upon approval, private placement documents are electronically filed with appropriate governing bodies, if required, including FINRA's Private Placement Filing System, within a designated time period according to regulations, stored electronically, and made available for electronic access to system participants.

Preparation for Placement of Issue (Continued): Upon approval, required documents are uploaded to the Issuer's transfer agent, and a share certificate (commensurate with the maximum number of shares in the offering) is electronically downloaded electronically from the transfer agent. In one implementation, the Issuer or Seller Shares are posted and reflected electronically in Issuer's Account screen and Activity screen. Optionally, Issuer may authorize the system to automatically electronically populate documents for restricted securities sales pursuant to Regulation D and related filings. For example, these forms preferably include at least: stock purchase agreements; subscription agreements; 8k filings; amendments; Form D's; Form 144's; Form 144b letters; and legal opinions. In one implementation, the system electronically generates a legal opinion and a 144b letter that are automatically populated according to the facts and circumstances of a particular trade. If an investor chooses to utilize the system for share registration, the respective electronically-populated legal opinion and 144b letter are stored on the system for subsequent automatic dissemination to counsel, in addition to any other required supporting trade and funding documents, upon the conclusion of the required holding period pursuant to Rule 144. The Issuer may, for instance, authorize the system to automatically request a legal opinion from counsel in order to administer rapid processing for registration.

Investor Registration: Investors must be qualified and approved to invest in placements by means of the system. Preferably, an accreditation procedure is implemented, maintained and updated within the system as required. Alternatively, accreditation and maintenance may be contracted to a third party and electronically linked. Investors may download and fill out new account forms. Investors may then be prompted to designate themselves as a particular category of investor. By way of example, categories may include: accredited individual investors, non-accredited individual investors, qualified institutional buyers (QIBs), market makers, trusts, holding companies, and other parties potentially allowed to invest. Definitions of each designation may be made available to registering parties upon prompting. Preferably, the investors supply documents to support their designation. The investor's designation determines whether the market participant is eligible to participate in transactions according to respective rules and regulations. The system is contemplated to be programmed to reference qualifying factors and set trade parameters to automatically comply with regulations with regard to counter party eligibility, offering, designation and resale (seeFIG.50andFIG.62). Additionally, according to the counter party designation and other factors in a specific trade, the system may automatically determine whether “tacking,” in each restricted share sale, is allowable by rules and regulations. The term “tacking” refers to tacking together the time each shareholder holds the stock, and is allowable under certain parameters and circumstances pertaining to a particular trade. The ascertainment of whether tacking is permitted in a particular trade determines the date a restricted security is eligible to have the restriction lifted. For example, the system may process the variables of the trade in comparison with existing regulations to determine whether tacking is allowed in a particular resale of shares, or whether the holding period restarts for a new investor. Investors declare whether they are related to a syndicate or group of investors, which determines filing requirements and may determine if or how many shares can be purchased in a particular share offering according to Section 16 of the Securities Exchange act of 1934. For example, if the investor is designated as part of a syndicate or related investment group, the system may be programmed to automatically link the investors for purposes of Section 16 compliance, as well as for the purpose of disqualifying barred investors from purchasing specified restricted security offerings, in accordance with issuer's request. Investors may represent whether they are insiders or control parties in any public company. Potentially, investors may authorize the system to automatically populate and/or electronically sign documents related to trades. These documents may include, for instance, stock power, stock purchase agreements and subscription agreements. Investors may be queried whether they authorize the system to automatically file and disseminate required documents according to available information. Filings may include, for example, Form 3, Form 4, Form 5, Form 144 and Form 144B, in addition to any documents supporting a legal opinion for purposes of registration. Upon acceptance by the system, qualified investors sign and upload required documents. Documents are filed electronically in the system.

Offer for Sale by Issuer/Seller: In accordance with an exemplary implementation, a qualified issuer or reseller of restricted securities may offer to sell restricted securities through a secure web-based portal or other electronic means. The restricted securities offered for sale are priced by the issuer, corporate insider or control person, or reseller in terms of a specified streaming percentage discount-to-free-trading (DFT) shares. The price of restricted securities may automatically adjust to the offer or last trade price of corresponding free trading shares on a streaming, real-time basis. Preferably, a percentage discount range is provided within a range of 5 percent to 50 percent. According to one example, shares are offered as a day order. According to another example, the offer remains effective until cancelled. According to yet another example, orders remains effective until a specified date (seeFIGS.3-11).

According to another implementation, restricted securities are offered at a fixed price. Prices set by formula are also contemplated. For example, shares may be offered in terms of a streaming discount to free trading share price with or without a fixed price minimum. Alternatively, shares may be offered at a discount to a specified trailing moving average, with or without a fixed price minimum. A variety of parameters are used to establish the price. For example, the offer size is entered in terms of number of shares offered, number of shares offered all or none, or number of shares offered with a minimum share purchase. According to a further embodiment, shares may be offered as a “contingency offer.” In this case, shares are offered contingent upon the occurrence of an event; typically, an aggregate number of shares being purchased by the closing date of the offering, and no minimum purchase requirement. According to a preferred embodiment, contingent offers will be designated, for example, by a “c” or other notation means in conjunction with the restricted share quote. In this case, details of the terms of the contingency are available to the prospective investor upon prompting. Accordingly, if the investor purchases shares of restricted securities that are offered subject to one or more contingencies, shares and funds designated for purchasing shares remain pending until the contingencies are satisfied or the offer is cancelled.

All of the various types of offers are preferably electronically submitted, and reflected on the trading platform. For instance, the issuers may determine whether they are willing to accept counter bids for their offers. Preferably, issuer and/or seller are electronically notified of counter offers.

Issuer/Seller Compliance: According to another implementation of the present invention, when a seller is an issuer, a statement of governing regulations, a compliance agreement and a checklist are prompted upon entering an order to sell shares. Detailed regulations for the specific trade are made be available upon prompting. The system automatically cross-references facts and circumstances of a particular trade, and subsequently compiles a list of required filings according to rules and regulations incorporated into the system. In the United States, for issuers, the preferred implementation would likely be in accordance with Rule 504, Rule 505, Rule 506(b) or Rule 506(c), of SEC Regulation D. Also, in the United States, for insider or control persons selling, or resellers of shares, the preferred implementation would likely be SEC Rule 144 or SEC Rule 144a. For instances in which regulatory filings are required, the seller or issuer is preferably prompted to file appropriate documents prior to sale, or within a designated period of time according to regulations. Documents are preferably automatically populated in accordance with trade data and personal information, and cross-referenced rules and regulations programmed or otherwise integrated into the system. In addition to electronic filing of documents to appropriate regulatory agencies, electronically filed documents are preferably automatically copied to the issuer's portal, to issuer's legal counsel, and to issuer's transfer agent. Furthermore, such documents are preferably made available to all parties upon prompting. Compliance issues for seller or issuer preferably include: the number of shares issued by an issuer within a designated time period; issues related to insider or control status of the seller of shares; seller's lock-up periods; seller's holdings status; issuer's reporting status; and other limitations described in respective statutes, regulations and policies (FIG.14).

Noncompliant Offers: The system may automatically reject offers that fall outside programmed compliance parameters for trading. According to an implementation, an offer falls out of compliance if the offering price for restricted shares drops below 50-percent of streaming, real-time price of free trading shares. According to another example, an offer fails in the event the free trading share price falls below a fixed offering price for restricted shares. According to a third example, the offer fails if the stated minimum offer price for the free trading shares exceeds the current market price of the free trading shares. According to a fourth example, the offer fails if a restricted share offer is priced as a discount to trailing moving average, and the offer crosses current price for free trading shares. In the event issuer, seller or reseller, are determined by the system to be out of compliance, or not current with information or filings, offers may be cancelled at the system's discretion. In the event the offer is rejected or cancelled, the seller is electronically informed of reason for rejection of offer.

Offer for Sale Limitations by Issuer/Seller: According to an exemplary implementation, restricted shares are offered by the issuer or reseller when there is no bid present—thereby, creating a posted offer. Restricted shares may be offered at parameters that are not in accord with an existing bid, creating a posted counter offer. Furthermore, the Seller may sell shares within the parameters of the existing bid to consummate the transaction. Furthermore, issuers registered with the system can elect whether or not to accept unsolicited bids from potential investors for registered securities. If the issuer chooses to accept unsolicited bids for restricted shares, the company's offering of restricted shares will be listed on the system as “available” for bid or purchase (FIG.15). Issuers may elect to accept counter bids for shares offered through the system. Alternatively, issuer can require that if investors purchase shares, the transaction is effectuated within the parameters of their offer.

The system may accept or reject offers based upon the number or value of restricted securities issued by an issuer within a specified time period, in accordance with rules and regulations governing the specific transaction. Issuer may be alerted to file a revised Form 8-k to the SEC if the offer is materially changed. The system monitors the number or value of shares the issuer or seller is permitted to sell within a given time period according to regulations, and updates the corresponding value displayed upon the account screen on a streaming basis. The system may accept or reject offers based upon criteria such as, for example, a seller's insider status, a seller's holdings status, an issuer's reporting status, whether an issuer has recently placed securities pursuant to Regulation D, and any other criteria that may raise questions as to the propriety of the transaction. (FIG.13).

Bid to Purchase by Qualified Investor: By way of example, a qualified investor may bid for restricted securities through a secure web-based Internet portal, Intranet, or any other network or other communication means. According to one embodiment, if unsolicited bids are accepted for a selected security, restricted shares are bid for by the Investor when there is no bid present, creating a posted bid for the restricted securities (FIGS.15-23).

According to an exemplary implementation, restricted shares are bid at parameters that are not in accord with an existing offer, creating a posted counter bid for the restricted securities (FIGS.24-31). Alternatively, where there is an existing offer to sell restricted securities, an investor may purchase shares within the parameters of the existing offer to consummate the transaction. (FIG.32).

Restricted shares can also be bid for at a fixed price. Additionally, restricted shares can be bid in terms of a streaming discount to free trading shares with or without a fixed price maximum. In another embodiment, restricted shares can be bid in terms of a discount to a trailing moving average with or without a fixed price maximum. If restricted shares are bid in terms of a discount, the bid automatically adjusts to the bid, offer or last trade price of the free trading shares on a streaming real time basis. (FIG.12) The bid size can be in terms of number of shares, number of shares bid all or none, or number of shares bid with a minimum share purchase. All three types of bids can be electronically submitted and reflected in detail on the trading platform. According to another example, Shares are offered either as a day order, effective until cancelled or effective until a specified date. According to one embodiment, upon submitting a trade, an investor can again be qualified for suitability electronically, such as via pop-up screen or other method (FIG.28). According to another embodiment, a specified time period to complete the bidding process is displayed upon entering parameters for the trade. According to a preferred embodiment of this invention the maximum time period between selecting the parameters of the bid and submitting the bid for trade is 90 seconds. (FIG.29).

Non-Compliant Bids: The System may automatically reject bids that fall outside programmed compliance parameters for trading According to one embodiment, a bid falls out of compliance if the bid price for restricted shares drops below 50% of streaming, real time price of free trading shares. According to another example, a bid fails in the event the free trading share price falls below the bid price for restricted shares without the trade for restricted shares being executed. According to a third example, bid fails if the stated maximum bid price for the free trading shares exceeds the current market price of the free trading shares. In the event Issuer, investor is determined by the System to be out of compliance or not current with information or filings, bids may be cancelled at the system's discretion. In the event the bid is rejected or cancelled, the bidder is electronically informed of reason for rejection of offer.

Dynamic Pricing in Real Time: According to this example, the current high bid or low offer, whether static or dynamic, is reflected on a computer monitor trade screen. Other active bids and offers, including bid or offer size, are available for display by the site user. According to one embodiment, trade screen can be accessed by keyword, from quote screens, offer screens or market depth screens. The invention contemplates that a counter party may trade any existing bid or offer prompted on the market depth screen, not just the inside market (FIG.62).

According to one example, a seller offers shares at a 6% discount to free trading shares and a bidder submits a bid for shares at a 9% discount. The restricted share quote reflects: “WXYZ.R −6% −9%” with size and other trade parameters displayed.

Dynamic Trading in Real Time: The present invention contemplates that the system utilizes dedicated software through a secure website. The website comprises designated electronic pages for issuer and investor, representing both sides of the transaction, including inter alia, one or more of the following: introduction; qualification questionnaire; new account form; instructions; tutorial demonstration, or other applicable forms or information. Secure login capability is also contemplated using methods well-known in the art. Security protection and privacy concerns are contemplated. According to an embodiment of this invention, the system further comprises a secured system providing secure confidential information exchange.

According to one implementation, the qualified investor elects to purchase or sell a security. If the investor does not presently hold securities, the option to sell is not made available (FIG.32). According to one embodiment, the website lists registered and participating issuers via electronic lists, electronic grid, and makes them available for search via keyword or free trading quote screen (FIG.32;FIG.37). The invention contemplates providing an indication if restricted securities are not tradable in the stock accessed via keyword or free trading quote screen. (FIG.35;FIG.36). According to a preferred embodiment, electronic lists delineate tradable restricted securities by designated parameters (FIG.37).

According to another implementation, all companies registered with the system are listed. In another embodiment, all public companies whose restricted shares are tradable on the System are listed (FIGS.38-40). In another embodiment, tradable restricted securities are listed by high to low, or low to high market capitalization (FIG.41andFIG.42). In yet another embodiment, tradable restricted securities are listed by high to low or low to high discount. (FIG.43); (FIG.44). In yet another embodiment, tradable restricted securities with both bids and offers are listed. (FIG.45); (FIG.46). In yet another embodiment, tradable restricted securities with bids only are listed. (FIG.47); (FIG.48)

In another implementation, tradable restricted securities with offers only are listed. (FIG.49); (FIG.50). In yet another embodiment, tradable restricted securities are listed by high to low, or low to high liquidity. (FIG.51); (FIG.52). In yet another embodiment, tradable restricted securities are listed by high to low discount increase or decrease. (FIG.53); (FIG.54)

According to another implementation, tradable restricted securities with crossed markets are listed. (FIG.55); (FIG.56); (FIG.57); (FIG.58). In still another embodiment, tradable restricted securities with locked markets are listed. (FIG.59); (FIG.60); (FIG.61); (FIG.62); (FIG.63). In still yet another embodiment, tradable restricted securities are listed by stocks with no current bid or offer. (FIG.64); (FIG.65). In yet another embodiment, tradable restricted securities are listed by stocks trading at a streaming discount to free trading shares. (FIG.66); (FIG.67). In still yet another embodiment, tradable restricted securities are listed by stocks trading at a streaming percentage discount to moving average. (FIG.68); (FIG.69) In still yet even another embodiment, tradable restricted securities and listed by number of participants in the market for the shares, in this example referred to as “market depth.” (FIG.70); (FIG.71)

According to another implementation, lists of registered sellers include indications of issuer-offered securities. In one embodiment, an offer is present and the list includes the availability of a counter bid option for the investor (FIG.72). In another embodiment, the offer is firm and the investor does not have the option to counter bid, but may purchase the security within the parameters of the offer. (FIG.73) In another embodiment, there are bids present, but no offer(s). (FIG.74) In still another embodiment, there are neither bids nor offers present, and investors may place bids for restricted securities. Qualified resellers, issuers, or insider/control parties are eligible to offer shares. In one embodiment, the invention includes lists of non-issuer offered securities. Other information about the issuing company is contemplated to be available via electronic prompting or other electronic means in a real-time setting. This information is contemplated to include free trading quote, restricted securities quote, company news and information, daily and historical stock chart, average daily volume, and other information. (FIG.75) Restricted shares are contemplated to be designated on quote and trading screen as (stock symbol) .R or other appropriate designation. Free trading stocks are contemplated to be listed in terms of free trading shares bid and ask, with or without size. Restricted securities quotes are contemplated to include bid and offer, with or without size. Restricted securities are contemplated to be listed in terms of number of shares bid and offered, number of shares bid and offered all or none, or number of shares bid and offered with a minimum transaction amount. According to one embodiment, information is provided accompanying RS quote or chart including the number of shares issued during designated time periods. According to one embodiment, available information available with RS quote or chart includes number of days issuer has been offering the shares during current offer. According to a further embodiment, information available with RS quote or chart includes percentage of current offer placed, According to another embodiment, information regarding date and size of previous offer is available with RS quote or chart. According to yet another embodiment, average daily volume history of RS offer price is available with RS quote or chart. According to a further embodiment, indication of whether current bid and offer price has been raised or lowered by an arrow or other means is available with RS quote or chart.

Desired information is selected and modified electronically through a user's individualized portal through checklist of features or other means. Information is accessible via site user's portal and reflected on site user's individual screen. Restricted shares are entered for purchase or sale through registered site user's electronic portal.

Trade Resolution: According to an alternative example, seller offers to sell shares at bid, or a designated percentage discount to free trading shares. As a method of trade resolution, the buyer of the shares must pay the entire fee for the trade, which will be added to the cost of shares.

According to yet another alternative example, an investor “takes” an existing offer and purchases the shares at a designated discount to free trading shares, and as a method of trade resolution, the seller pays the entire fee for the trade. This type of counter bid and offer are contemplated to be facilitated as an option on the Private Counter Offer screen. This method facilitates activity and liquidity.

According to one embodiment, the entire transaction cost is debited from the proceeds of the sale. According to another embodiment, the entire transaction cost is added to the fee or commission of the purchase. According to an alternative embodiment, seller or investor may counter bid or counter offer privately (PCO). This process can be initiated within the system upon prompting. According to this example, the private offer will be delivered electronically as a message, alert, email, text or combination thereof. According to one embodiment, the terms of the counter offer will fall between and within the parameters of the existing ‘inside’ market, or high bid and low offer. According to another embodiment, the terms of the counter offer will fall between and within the two negotiating counterparties' bid and offer. According to one embodiment recipient of private counter offer may elect to accept the counter offer. According to another embodiment, recipient of counter offer may elect to reject counter offer. According to still another embodiment, recipient of counter offer may elect to counter the counter offer within the narrowed parameters of the revised bid and offer. According to one embodiment, this process may be repeated until buyer or seller accepts an offer. According to another embodiment, the PCO process is terminated upon either party adjusting their market on the trading system. According to another embodiment, the PCO process is terminated upon either the bidder or seller on the ‘inside market’ adjusting their market on the trading system. According to another embodiment, the PCO process is terminated upon either offer expiring. This enhanced auction method improves market liquidity. (FIG.33)

Commissions and Fees: According to one embodiment, the purchaser pays any transaction fees associated with the exchange, under party-specified conditions. According to another embodiment, the seller pays any transaction and fees associated with the exchange, under party-specified conditions.

According to another embodiment, shares are bid or offered as a discount to free trading shares, fee may be charged as a percentage discount to free trading shares. According to one example, shares are offered at a 20% discount relative to free trading shares, and the fee is 10% of the discount, the fee on the trade is 2.0%. According to another embodiment, commissions or fees for placement of restricted shares within the System is on a sliding scale formula, based on trade size and frequency of offerings. According to an alternative embodiment, minimum and maximum fees or commissions for placing restricted securities within the System are set. According to one embodiment, the commission is determined in terms of percentage of the total value of the restricted share placement.

According to still another embodiment, the fees or commissions are paid by the seller, whose offer is “taken.” According to still another embodiment, the fee is paid by the purchaser, whose bid is “taken.” According to this example, the party that “takes the offer” or “hits the bid” trades free of fees or commissions

Transaction Method and Process: illustrates an overview of the process by which shares are traded, approved, and designated to the appropriate account. (FIG.76)

Pre-Approval: According to another example, an approved investor prefunds a special-purpose account for the purchase of restricted shares. (FIG.77) In one embodiment, the account in which the funds are held is a nominee account, held in trust for the investor (“ITF account”). In another embodiment, funds are held in an escrow account. According to one embodiment of this example, the trustee is an exchange, BD, or clearing entity. The trustee of the special-purpose account is preapproved by the issuer for suitability. Rather than the existing method of the issuer of approving the investor to purchase restricted securities via private placement, the investor may be approved by the trustee, BD, exchange, or clearing entity according to regulations. The issuer may pre-approve the trustee for the beneficial shareholder for suitability. All requisite approvals are in place prior to investor bidding for, or purchasing shares.

Issuing Shares: According to one embodiment, prior to listing shares for sale, the issuer issues a sufficient number of shares for the entire offer. The shares are reserved by the transfer agent and held in book entry form. Alternatively, shares are sent electronically and held the issuer's account within the System. The number of shares eligible for listing are posted and recorded electronically on issuer's portal. (FIG.78); (FIG.79); (FIG.80); (FIG.81). Each issuance of shares by the issuer is assigned an identification number. This is matched with purchase. According to one embodiment of this example, upon prompting the identification number, the screen displays purchaser, number of shares purchased, time and date of transaction, status of transaction, number of days remaining in holding period, current shareholder, and history of transactions in offering. Confirmation is sent electronically to the exchange the required shares have been issued and reserved. According to alternative embodiment, when shares are purchased the funds in the special purpose account are electronically transferred to the transfer agent and the shares are automatically transferred electronically using DTCC's Deposit/Withdrawal At Custodian (DWAC) or similar system.

Holding Shares: According to another embodiment, restricted shares are held in special-purpose nominee account or street name with investor indicated as beneficial owner. Alternatively, shares are held directly in the investor's name. The shares are posted in investor's account immediately upon purchase. According to one embodiment share positions are listed as “pending” or other tenuous designation until post-trade compliance review is successfully completed. (FIG.82) When compliance review is successfully completed and trade is approved, the restricted shares are designated in an account awaiting maturity or resale and funds are transferred to the seller. (FIG.83); (FIG.87) Other information is listed, in addition to the number of shares. Additional information includes share status (i.e. restricted or free-trading); number of days remaining in holding period; shares eligibility for processing to remove restriction; company reporting compliance status, or other pertinent information relevant to the investment.

Each transaction has a designated identification code, such as a serial number, which is available on the investor's Internet portal, which is used to can be prompted to access relevant information about the transaction and parties. According to one embodiment, such information includes the name of security with stock symbol, date and time of purchase; whether shares are restricted or free trading, purchase price, current price, cost of transaction, transaction fee, date account was funded, electronic copy of check or fund transfer information, and any other information related to the transaction.

(D) Reselling Restricted Shares: According to another embodiment, during the holding period, the investor resells the previously purchased restricted shares through the exchange of the present invention. (FIG.85) According to this example, the investor effectuates the resale exclusively through the closed loop system of the present invention, wherein the restricted shares are sequestered in the investor's account; the investor cannot sell restricted shares acquired or transferred through other means. This exclusivity ensures the integrity of the closed loop system, and eliminates compromised or suspect shares from entering the system. According to an alternative embodiment, a shareholder converts shares to certificate form for holding or transferring to a different account. However, such shares cannot reenter the System of the present invention.

According to another example, an investor electing to resell shares is automatically prompted by pop-up electronic questionnaire upon submitted shares for sale. Using the prompts, the investor is required to declare whether they own or beneficially own a percentage of the company whose shares they are offering that requires additional reporting; whether they are an officer or director of underlying company whose shares the investor is offering, or other circumstances that may restrict the shareholder from freely or legally selling shares. If a trade has additional reporting requirements, appropriate documents are available on the website electronically and are capable of being electronically submitted to the appropriate governing bodies. According to one embodiment, the investor is charged a fee for this service. Alternatively reseller waives the electronic submission option. Completed forms and documentation is electronically archived and accessible by investor at a later time.

(E) Maturity of Restricted Shares: According to another example, if the holder of restricted securities holds, at maturity, elects to lift restriction using the streamlined process of the present invention. (FIG.84); (FIG.87) The process is initiated electronically during or after required holding period for restricted securities has expired. According to one embodiment, the investor, using the internet portal, electronically provides designated legal counsel the required information to obtain a legal opinion that restricted securities may be converted to free trading shares. All required electronic forms are accessible on the website. Forms include subscription agreement, stock purchase agreement, letter of instruction, 144B letter, details and documentation of funding and purchase, and any other forms required by applicable policies, rules and regulations. According to another embodiment, upon legal approval, the legal opinion is electronically transmitted to a transfer agent with or without utilizing the system the present invention as an intermediary. Other necessary documentation, including letter of instruction, details of purchase and funding, is electronically submitted by the investor manually, or automatically generated via the system of the present invention. Upon approval, transfer agent exchanges restricted book entry shares for free trading shares via DWAC or similar system or issues shares in certificate form as preselected by investor.

Other embodiments of the present invention also include software, or program product stored on a tangible computer memory media as a set of instructions, operable on a computer to cause the instructions to be executed by the computer, and used to manage and operate the system as provided in the present invention.

Many modifications and variations of the present invention are possible in light of the above teachings. It is therefore to be understood that within the scope of the appended claims, the invention may be practiced otherwise than as specifically described. The preferred embodiments described herein detail for illustrative purposes are subject to many variations in structure and design. It should be emphasized, however, that the present invention is not limited to the particular embodiments shown and described. Rather, the principles of the present invention can be used with a variety of configurations and structural arrangements. It is understood that various omissions, substitutions of equivalents are contemplated as circumstance may suggest or render expedient, but is intended to cover the application or implementation without departing from the spirit or scope of the claims of the present invention.

Indeed, this invention may be embodied in other forms or carried out in other ways without departing from the spirit or essential characteristics thereof. The present disclosure is therefore to be considered as in all respects illustrative and not restrictive, the scope of the invention being indicated by the appended Claims, and all changes which come within the meaning and range of equivalency are intended to be embraced therein.