30 Oct Flash: SEC Approves Final Crowdfunding Rules and Changes to Reg D Rule 504

As announced earlier this week, the SEC today approved final rules for Jumpstart Our Business Startups (JOBS) Act Title III “crowdfunding.” We don’t have all the details yet but it looks mostly like they proposed it, with a $1 million limit on crowdfunding, limits on what each investor can put in, disclosure and financial statement requirements, and the need to do every deal through a broker-dealer or online “portal.” The portal, if not a broker-dealer, can’t take commissions but can be a part owner of the business raising money under certain circumstances. You also cannot have raised any money in the last 12 months, as this is meant basically for startups.

In an interesting twist, the SEC also announced a proposal to increase the amount you can raise under Regulation D Rule 504 to $5 million from $1 million. Under 504, a non-SEC reporting company can raise money in a private transaction from an unlimited number of accredited or unaccredited investors, with no specific information delivery requirements. And their shares can trade publicly on the over-the-counter markets right after the offering, unlike after a Title III crowdfunding round, if the offering is registered in a state that reviews and approves disclosure. After quite a bit of alleged fraud in 504 deals, over 40 states effectively banned it, making it virtually worthless, but the rumor is states are ready to reconsider this. Again we await the details in the final actual published proposal but this is quite an interesting development indeed.

All this is against the backdrop of the final rules on Regulation A+ being passed back in March. There you do a full SEC-approved offering document, raise up to $50 million with no state blue sky interference, trade on essentially any platform or exchange that will have you, all through a somewhat streamlined process of disclosure, reporting and review. So off we go into the brave new world of JOBS Act financings!