SEC Issues Proposed Rules to Permit Crowdfunding (Pre-Fed. Reg. Version) (with Delta Strategy Group Summary)

The SEC voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.The JOBS Act established a foundation for the regulatory structure for crowdfunding. The proposed rules would, among other things, permit individuals to invest subject to certain thresholds, limit the amount of crowdfunded money a company can raise, require companies to disclose certain information about their offers, and create a regulatory framework for the intermediaries that would facilitate the crowdfunding transactions. Among the proposed rules:

• A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
• investors would be permitted to invest in a 12-month period up to $2,000 or 5 percent of their annual income or net worth if both their annual income and net worth were less than $100,000, or 10 percent of their annual income or net worth if either their annual income or net worth was equal to or more than $100,000;
• certain companies, such as non-U.S. companies, certain investment companies, and companies with no specific business plan would not be eligible to use the crowdfunding exemption;
• securities purchased in a crowdfunding transaction could not be resold for a period of one year;
• companies conducting a crowdfunding offering would be required to file certain information with the SEC; and
• offerings would be conducted exclusively online through a platform operated by a registered broker or a new type of SEC registrant called a funding portal.

At the SEC Open Meeting regarding crowdfunding, SEC Chair Mary Jo White and the Commissioners voiced their full support of the proposal while also recognizing that crowdfunding entailed some risks, such as fraud and the potential for self-dealing or overreaching by controlling shareholders. The Commissioners also welcomed public comment.

Click here for a summary of the Open Meeting, including the remarks of the Commissioners and the Crowdfunding Proposal by Delta Strategy Group.

See: SEC Crowdfunding Proposed Rule; SEC Press Release. See also: Chair White's Remarks; Commissioner Piwowar's Statement; Commissioner Aguilar's Statement; Commissioner Stein's Statement; Commissioner Gallagher's Statement; Submit Comment on Crowdfunding Proposal.