The USA passed the JOBS Act last year and since then, the role of working out how to implement that act has fallen to the SEC. So far, a lot has been published, but equity crowdfunding has not been legalised in the USA. In this article, Marc gives us a quick summary of the key findings and insights, so far…
Regarding Crowdfunding, the SEC in their recent update say that they’re working on requirements and rules, and nothing is finalized.
However, the SEC published, by means of footnotes, all of the pre-proposal submissions and some FAQ’s and there are some clues in the detail.
They do say that they have been providing guidance, for example through footnote 24 on ‘intermediaries’: http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm and that they have received 180 pre-proposals, footnote 23: http://www.sec.gov/comments/jobs-title-iii/jobs-title-iii.shtml and held many meetings with SEC officials.
Is this the message?
In regards to intermediaries the administration makes it perfectly clear that ‘intermediaries’ or ‘funding portals’ will need to be registered with the SEC, and will be subject to the SEC’s examination, enforcement, and rule making authority. Not that much different from being a registered broker.
All in all, from the SEC’s point of view, the portals or intermediaries are all issuing and exchanging securities. The funding portal must become a member of a national securities association that is registered under Section 15A of the Exchange Act.
The SEC’s comments that “at a minimum, you should understand the legal obligations that the JOBS Act assigned to crowdfunding intermediaries. For example, crowdfunding brokers and funding portals have significant duties under the JOBS Act to provide information to investors, reduce the risk of fraud and, where required under the Act, ensure that investors and issuers satisfy the requirements outlined in Title III of the JOBS Act.”
Next they summarized all of these duties (see link to footnote 24 above). I believe that with this testimony they have tried to give us the scope of the work they’re doing. Some of it has been completed and has gone into effect immediately (some rules pertaining to banking and ’emerging companies’.)
When will equity crowdfunding USA be given the green light?
According to the SEC ‘crowdfunding’ guidelines are still in the making. So has progress been made? It looks like a whole lot of information needs to be sorted through, summarized and decided upon.
How soon? Not very soon, hopefully by the end of this year.
What will happen next?
To implement Title III, the Commission must create a new regulatory regime for issuers seeking to engage in crowdfunding transactions, including ongoing reporting requirements, and for intermediaries seeking to facilitate crowdfunding transactions.
The new exemption provided in Title III would allow businesses to use crowdfunding to offer and sell securities without registration under the Securities Act, subject to certain conditions. Among its many conditions, Title III limits the maximum amount that may be raised by an issuer and the maximum amount that an individual investor may invest in a 12-month period.
Title III also requires that an offering made in reliance on the exemption be conducted through an intermediary that is either a registered broker or a registered “funding portal.” A funding portal, which is a new entity under the federal securities laws, would be subject to a conditional exemption from broker registration.
How far will the exemptions go in the new rules? The SEC needs to decide and make up it’s mind soon, right now they’re trying to tell a huge tidal wave to stop and wait. Remember what JOBS act stands for: Jumpstart Our Business Startups Act! The economy is waiting, businesses are waiting, the public is waiting.
A final note: the essence of all this is to protect the investor public from fraud when it comes to ‘securities’. Any of the rulings and guidances may be superseded at any time with ‘Supreme Court’ rulings. The Supreme Court has defended the consumer (investor or business angel in this case) and prohibited public advertising and solicitation of investment funds. There are many rulings that give an idea of what the lawmakers have in mind.
Sadly, this is not becoming easier, legal advice may still be the best idea before raising capital for your business via equity crowdfunding in the USA.