SEC Tells Those Waiting to Crowdfund to Settle Down

On April 23, 2012, the SEC posed a release reminding issuers that capital raising via crowdfunding is not yet a reality:

On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.

There is a lot of excitement in the securities and business worlds about the potential for crowdfunding to allow smaller companies to raise capital.  But, I think much of that excitement is premature.

First, under Section 301(c) of the JOBS Act, the SEC has 270 days (yes, about 9 months) to issue rules implementing the crowdfunding provisions of the JOBS Act and the SEC may be unable to meet that deadline.  Wave after wave of regulatory reform hitting the SEC has resulted in the SEC falling behind on its rule making activities under the Dodd-Frank Act.  In addition, the JOBS Act requires the SEC to consult with any state securities commission and national securities association that that wants to provide input, which has the potential to consume a lot of time.

Second, the JOBS Act provides the SEC with a great deal of discretion on how to implement the crowdfunding provisions.  While the JOBS Act received broad bipartisan and Presidential support, it is no secret that the SEC is not a fan of the crowdfunding.  As such, it is difficult to predict the ultimate outcome of the SEC’s rulemaking activities with respect to crowdfunding or how those rules will be perceived by companies and the securities industry. 


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