SEC Finally Proposes Rules to Allow Crowdfunding

Joseph R. Soraghan

By Joseph R. Soraghan

Not quite ten months late, the Securities and Exchange Commission (SEC) on October 23, 2013 proposed rules to allow entrepreneurs and other small businesses to advertise investments in their companies on the Internet and in other general venues, and to allow persons other than wealthy investors to purchase those investments. Congress, in the JOBS Act signed by President Obama on April 5, 2013, had told the SEC to propose such rules by December 31, 2012. (In fairness, the SEC was faced with great pressures from numerous quarters, including the legislators themselves, concerning the content of the rules, which made that deadline impossible to meet.)

This type of investing, called “investment crowdfunding,” was illegal, and will remain illegal until the process of review, amendment and adoption of final rules is complete. The SEC has asked the public for comment on the proposed rules within 90 days. At least a few months of further processing after that 90 day period will be required before the rules are final.

The SEC release containing the proposals is 585 pages long. Indeed, just the portion of the release containing the rules and required forms is 170 pages. (The remainder are essentially analysis.) So mature comment on the rules by attorneys and others will take significant time. However, it appears that the proposed rules set parameters and restrictions that pretty much mirror the JOBS Act statute.

The JOBS Act not only called for significant restriction on the companies seeking financing. It required that such companies must use other companies, either registered broker-dealers or lesser platforms, called “portals,” to actually perform the solicitation, and ordered that the SEC rules set very numerous and complex requirements and restriction on such platforms. Until a bit more time has passed to allow careful analysis of the proposed rules, suffice it to say that the rules concerning both the user companies and platforms/portals seem to comply in number and complexity.

Posted by Attorney Joseph R. Soraghan. Soraghan practices in legal matters pertaining to business operations and growth. He guides businesses in financing, contracts, acquisitions, mergers, and sales. Soraghan frequently resolves commercial disputes as an arbitrator or mediator, or through litigation.


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