SEC Issues Crowdfunding Alert

As the May effective date for the Securities and Exchange Commission’s crowdfunding rules draws closer, the agency has released a primer for investors who wish to participate in such ventures. On Tuesday, the SEC released an Investor Alert detailing the parameters – and potential risks — associated with crowdfunding. Companies can use crowdfunding to offer and sell securities to the investing public starting May 16. Funding portals could begin registering with the Commission in late January.  The alert notes that while anyone can invest in crowdfunding, there are numerous risks involved because crowdfunded projects are early-stage ventures, and there are limits to how much a person can invest during any 12-month period in these transactions.  The SEC alert notes the limits depend on net worth and annual income. If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.  If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.  Crowdfunding investments can only be made through an online platform, such as a website or a mobile app, of a broker-dealer or a funding portal; companies will be prohibited from offering direct crowdfunding investments. The Financial Industry Regulatory Authority, which is charged with regulating broker-dealers that intend to develop Internet funding portals, filed with the SEC on Oct. 22 its proposed rule changes for funding portals, including the registration rules. The SEC approved in January FINRA’s proposed Funding Portal Rules and related forms for SEC-registered funding portals that become FINRA members pursuant to the crowdfunding provisions of Title III of the JOBS Act and the SEC’s Regulation Crowdfunding. FINRA’s funding portal rules became effective on Jan. 29, which aligns with the effective date of the SEC’s registration rules under Regulation Crowdfunding. Funding portals are required to register with the Commission and to become FINRA members. The alert notes that investing in crowdfunding is different than being a shareholder in a publicly listed company. “For one thing, you cannot sell your shares at any time as you would be able to do if you held shares in a publicly listed company,” the alert notes. In fact, it states, the investor is restricted from reselling their shares for the first year, unless the shares are transferred to the company that issued the securities, to an accredited investor, to a family member, in connection with the investor’s death or divorce or other similar circumstance, to a trust controlled by the investor or a trust created for the benefit of a family member, or as part of an offering registered with the SEC.

Source: SEC Issues Crowdfunding Alert


Could the new SEC venture capital rule fund a cure for cancer? – Washington Business Journal

Source: Could the new SEC venture capital rule fund a cure for cancer? – Washington Business Journal

Bennet, Merkley Press SEC to Finalize Crowdfunding Rules

Washington, DC – U.S. Senators Michael Bennet (D-CO) and Jeff Merkley (D-OR) called on the Securities and Exchange Commission (SEC) to finalize its crowdfunding rules that will allow small businesses and start-ups to raise capital online and through social media.

Bennet and Merkley were lead sponsors along with former Republican Massachusetts Senator Scott Brown on the bipartisan CROWDFUND Act, which was passed on April 5, 2012 as part of the JOBS Act, which allows small businesses to raise start-up capital on the internet.

In a letter to SEC Chair Mary Jo White, the senators wrote, “The law directed the SEC to promulgate the necessary rules within 270 days of the enactment of the Act. The proposed rules, however, were not published for public comment until over 500 days later, on October 13, 2013. The comment period for the proposed rules closed on February 14, 2014. Despite the fact that finalizing the rules has been a stated Commission priority for all of 2014, the rules governing this crucial new source of financing have still not been finalized.”

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Many States Aren’t Waiting for the SEC

The Jumpstart Our Business Startups Act was signed into law in April 2012 and the Securities and Exchange Commission has been developing regulations ever since to implement the law’s provision that would allow companies to raise capital through equity crowdfunding.

Those regulations still have not been finalized.

In contrast, Georgia, Kansas, Michigan, Alabama and Maine already have laws and regulations that allow crowdfunding within the states. A new law in Washington state awaits the governor’s signature. In Wisconsin, new rules will take effect June 1 and in Indiana, new regulations become official July 1.


A dozen other states are developing crowdfunding regulations. Securities regulators in Texas are ready to announce new crowdfunding regulations, according to local news media. Connecticut has a state-sanctioned study under way.

Two states, New Mexico and Mississippi, have already considered and abandoned crowdfunding legislation.

In fact, while the SEC has sought to locate the delicate balance between making it easier for small companies to raise capital and protecting unaccredited investors, almost half the states in total have moved toward their own intrastate regulations.

“There is a level of frustration out there over the delays by the SEC, and I think the states are simply trying to plug a hole,” said Douglas Ellenoff, a partner with the law firm of Ellenoff Grossman & Schole LLP in New York.


Read more: Here

Crowdfunding Delay from the SEC

crowdfunding-delaysBusiness owners and investors have been anxiously waiting for the SEC to finalize their crowdfunding regulations since the JOBS Act was passed in 2012.  It has been two years and we are still waiting.  In 2013, the SEC issued their proposed rules and we have reviewed them extensively on this blog.  They covered everything from who can be involved, how much money can be raised, the amount individual investors can contribute and more.  In total, the document is over 500 pages long.  Since issuing the proposal, the SEC has been accepting comments from anyone related to the industry in order to get feedback on which part of the proposed rules to keep and which ones need adjusting.

The Proposed Rules Have Been Scrapped

Last week the SEC’s crowdfunding advisory board, a panel of 21 people, voted unanimously that they proposed rules do not meet the spirit or guidelines outlined in the JOBS Act.  In other words, they need to be scrapped and the SEC must start again.  Considering it took a year and a half to issue the first set of proposed rules this is not good news for the crowdfunding community.

Read More Here