TABB Says SEC Rules Point to Institutionalization of Crowdfunding

tabbNEW YORK & LONDON — Based on the SEC’s proposed crowdfunding Title II and Title III rules, equity crowdfunding will soon enter the United States, providing a new option for small businesses to raise financing, bringing with it the promise of democratizing access to capital by giving power to the crowd.

But in new research, “US Crowdfunding: The Making of a Market,” co-written by CEO Larry Tabb and contributing analyst Deepali Nigam, TABB Group says the jury is still out on the final rules’ impact:

Will they have the power to create a healthy new marketplace where US small businesses will be able to successfully gain access to funding?
Will crowdfunding expose innocent, small-time investors to fraudsters and scam artists?
Will the rules prove too rigid, stifling this industry before it even starts?
Will crowdfunding be too expensive for US businesses?
Who will gain advantages, broker/dealers or funding portals, with barriers-to-entry costs for one, potential liability exposure for the other, among other issues?
Assuming a conservative 5% growth rate per year, TABB believes angel investing will grow to at least $28.5 billion by 2016, but will angel investing rules be more impactful to investors or issuers?
As new platforms targeting accredited investors emerge, how easy will it be for high net worth individuals to meet their investment strategy requirements from as little as $1,000 to $37,000 per investment?

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SEC’s Sunshine Act Meeting

Seal of the U.S. Securities and Exchange Commi...
Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Sunshine Act Meeting.

Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold an Open Meeting on Wednesday, October 23, 2013 at 10:00 a.m., in the Auditorium, Room L-002.

The subject matter of the Open Meeting will be:

  • The Commission will consider whether to propose rules and forms related to the offer and sale of securities through crowdfunding pursuant to Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act.

The duty officer has determined that no earlier notice was possible.

At times, changes in Commission priorities require alterations in the scheduling of meeting items.

For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact:

The Office of the Secretary at (202) 551-5400.

Elizabeth M. Murphy
Secretary

Dated: October 21, 2013

 

http://www.sec.gov/news/openmeetings/2013/ssamtg102313.htm

 

 

SEC Extends Comment Period for Section 506 Reg D Advertising Rules

Washington, DC – The Securities and Exchange Commission extended the public comment period for proposed, new rules that would govern how businesses can advertise equity offerings to accredited investors under Rule 506 Regulation D.

SEC

SEC

On July 10, 2013, the SEC issued rules that would lift the ban against general solicitations for Rule 506 Regulation D offering as mandated by Title II of the Jumpstart Our Business Startups Act.  The new rules lifted the ban effective September 23, 2013; however, the SEC also proposed for public comment additional rules that would regulate general advertising for Rule 506 offerings.

The comment period for the new rules closed on September 23, 2013, but on September 27, 2013, the SEC said it will reopen the public comment period.

Rule 506 exempts business from registering their securities with the SEC if they are offering and selling their equity only to “accredited investors” under Rule 501 of Regulation D. On July 10, 2013, the SEC also proposed, newadditional rules for public comment that would add restrictions to general solicitations.  The SEC’s new proposals would:

1.   Require the filing of a Form D no later than 15 days in advance of a general solicitation followed by a closing Form D amendment 20 days after the Rule 506 offering. The Crowdfund Intermediary Regulatory Advocates (CFIRA) commented to the SEC that the proposal is  ”inconsistent with the principles of the JOBS Act for general solicitation and advertising.”

2.  Require the placement of  a legend — that is, a disclaimer that the advertising is offering a private placement of securities — with any advertising. CFIRA noted that such a proposal would make it impossible to use services such as Twitter to make an offering.

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Historic Change in General Solicitation Law That Goes Into Effect Monday

jobs_actAn 80-year-old ban that has prevented private companies from publicly advertising their efforts to raise funds will lift on Monday.

If you are an entrepreneur struggling to find investors, that may be very good news. But hold the champagne for now.

What this historic change in general solicitation law really means is that if you are an entrepreneur looking to raise money from investors, you might want to spend some quality time with a lawyer before you go shouting it from the rooftops.

That’s because the Securities and Exchange Commission is expected on Monday to release further guidance on how it will regulate the new law – guidance that may determine how much the change will ultimately end up benefiting entrepreneurs.

“The proposed rules are absolutely critical to determining whether this will be successful or not. They have the potential to dramatically reduce the ability of companies to take advantage of this,” says Rory Eakin, co-founder of CircleUp, an online portal that connects consumer-product entrepreneurs with accredited investors. If the SEC requires companies to file excessive amounts of paperwork, many entrepreneurs may choose to not take advantage of the rule change, says Eakin.

2. Only accredited investors can actually purchase equity in a private company. While the lift of the ban means that entrepreneurs can tell the world that they are raising money, it’s still only accredited investors who are able to make investments, explains Jay Kalish, general counsel at the equity crowdfunding platform, OurCrowd, on a conference call with reporters and investors earlier this week.

In the U.S., an accredited investor has to have $200,000 in annual income over the past two years and be able to prove a reasonable expectation that he or she will maintain such an income during the current year, or $1 million in net worth, not including the value of his or her primary home. Also, anyone with a history of fraud or a felon, a so-called “bad actor,” will not be able to participate.

3. Your mom, grandma and sister will all start to see more advertisements from startups, even if they aren’t accredited investors. While only accredited investors will be able to purchase private company stock, everyone is going to see more advertisements. “For the non-accredited investor, the regular consumer, you can’t stop what is being publicly put in your face, right? Just by virtue of being a consumer of media and just a consumer, period, you will be messaged, too, and that is different than before. It used to be that the SEC prevented you from seeing these sorts of things,” says Mittal. “There is a whole new type of messaging that regular people will be exposed to.”

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Final Crowdfunding Rules Not Likely Until Late 2014

Seal of the U.S. Securities and Exchange Commi...
Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Final crowdfunding rules are not likely to be in place until late 2014 because the Financial Industry Regulatory Authority and the Securities and Exchange Commission need to take more action, according to a blog on corporate and securities regulation.

TheCorporateCounsel.net blog said today that Finra still needs to create a regulatory system for funding portals and the SEC is still developing rules.

“As a result, the ability to do exempt crowdfunding offerings remains limited, except that many are anticipating the ability to do more accredited investor-only crowdfunding offerings once general solicitation is permitted under Rule 506 after the September 23, 2013, effective date of those JOBS Act mandated rule changes,” the authors noted.

TheCorporateCounsel.net added the SEC’s proposed amendments to Regulation D and Form D to have investor safeguards when the general solicitation ban is lifted is drawing fire as not being faithful to the JOBS act’s goal of promoting capital formation.

The SEC’s crowdfunding rules will set the standards for exempt crowdfunding offerings to non-accredited investors, subject to a $1 million cap over a rolling 12-month period and dollar limits on an investor’s financial position.

TheCorporateCounsel.net is an educational service that provides guidance on legal issues involving corporate and securities regulation and corporate governance practices.

Source: fa-mag.com – Ted Knutson
Link: http://www.fa-mag.com/news/final-crowdfunding-rules-not-likely-until-late-2014-15305.html

Kara Stein Sworn in As SEC Commissioner

Washington, DC – August 9, 2013 SEC Chair Mary Jo White swore in Kara M. Stein today as the newest SEC Commissioner. The US Senate approve Ms. Stein’s appointment to the Securities and Exchange Commission on August 1, 2013.

SEC Commissioner Kara Stein (center).

SEC Commissioner Kara Stein (center).

Ms. Stein previously served as Legal Counsel and Senior Policy Advisor to Sen. Jack Reed.  From 2009 to 2013, she was Staff Director of the Senate Banking, Housing, and Urban Affairs Committee’s Subcommittee on Securities, Insurance, and Investment.  Ms. Stein was Legal Counsel and Senior Policy Advisor to Sen. Reed from 2007 to 2009 and served as both the Majority and Minority Staff Director on the Banking Committee’s Subcommittee on Housing and Transportation from 2001 to 2006.  She served as Legal Counsel to Sen. Reed from 1999 to 2000, following two years as a Legislative Assistant to Sen. Chris Dodd.

“I am very pleased to welcome Kara Stein to the SEC and greatly appreciate her continued commitment to public service,” said Chair White.  “Kara joins an agency comprised of some of the most dedicated professionals in public service today.  She will be a critical partner in our ongoing effort to protect investors and oversee the most dynamic and complex markets in the world, and I am looking forward to working with her.”

Before working on Capitol Hill, Ms. Stein was an associate at the law firm of Wilmer, Cutler & Pickering and an assistant professor with the University of Dayton School of Law.  She was an Advocacy Fellow with the Georgetown University Law Center from 1993 to 1995, and was a Skadden Fellow from 1991 to 1993, and a visiting lecturer with the University of Nigeria Faculty of Law from 1989 to 1990.

 

Shakeup at the SEC Could Expedite Equity Crowdfunding

You’d think a vacancy at the top at the Securities and Exchange Commission would cause further delays in new regulations implementing crowdfunding and other provisions of the JOBS Act.

But that may not be the case, according toKaren Kerrigan, who heads the Small Business & Entrepreneurship Council and helped lead the push on Capitol Hill for the JOBS Act.

This legislation was enacted in April to make it easier for entrepreneurs to raise capital. The SEC, however, has beendragging its feet on issuing the regulations needed to make the law’s provisions a reality.

SEC Chairman Mary Schapiro announced yesterday that she will leave the agencynext month. That could be be good news for crowdfunding regulations, Kerrigan said, especially since Schapiro never seemed to embrace this innovation, which will allow businesses to raise capital by selling equity to lots of investors through Internet intermediaries..

“Perhaps new leadership — even if it is an interim leader — will breath some enhanced productivity and energy into the SEC’s work,” Kerrigan said. “At the staff level, the SEC is very engaged on JOBS Act provisions, and with the right signal and leadership I think the process can accelerate.”

SEC Commissioner Elisse Walter will serve as the agency’s interim chairman until Schapiro’s replacement is named by President Barack Obama and confirmed by the Senate — a process that could take months. Walter, however, appears to be more crowdfunding-friendly than Schapiro.

Crowdfunding advocates “showed up in force” at a Nov. 15 SEC forum on how to improve access to capital for small businesses, Kerrigan said.

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