According to FINRA, Honeycomb Portal LLC was censured and fined $140,000 for violations related to its role as an intermediary in Regulation Crowdfunding (Reg CF) offerings.

The Pittsburgh, Pennsylvania funding portal knew or should have known that a separate funding portal affiliated with an issuer was improperly acting as an intermediary in two Reg CF offerings where Honeycomb was the designated intermediary.

Under Reg CF Rule 100(a)(3), crowdfunding offerings must be conducted exclusively through one intermediary. However, the affiliated funding portal was performing functions that only the designated intermediary should perform. Honeycomb lacked a reasonable basis to believe the issuer was complying with this single-intermediary requirement.

Additionally, Honeycomb failed to preserve certain required records, including electronic communications with the issuer related to the two offerings. The firm deleted or permitted the affiliated funding portal to delete these communications without retaining copies.

Regulation Crowdfunding allows companies to raise capital from the general public through online platforms, but includes important investor protections. The requirement that offerings proceed through a single intermediary helps ensure proper oversight and prevents confusion about which entity is responsible for compliance.

Record preservation requirements exist to allow regulators to investigate potential violations and to protect investors who may later have questions about how an offering was conducted.

For investors considering crowdfunding investments, this case highlights the importance of understanding who is serving as the intermediary for an offering and verifying that proper procedures are being followed. Crowdfunding investments carry significant risks, and the regulatory framework is designed to provide some protections—but only if intermediaries follow the rules.