18 Oct Flash: SEC Crowdfunding Rule Proposal to be Announced Next Week

Bloomberg reports today that the SEC plans to announce long-awaited proposed rules on “crowdfunding” next week. There is no notice yet on the SEC website, but apparently the news outlet heard from those in the know. The Jumpstart our Business Startups (JOBS) Act of 2012 mandated that the SEC set up rules to allow companies to raise up to $1 million in an offering to an unlimited number of accredited or non-accredited investors, with a number of protections, including limits on what one person can invest and a requirement that the company not have raised money in the 12 months prior to crowdfunding. In most cases a detailed disclosure document also would be required, along with financial information.

Every deal would have to be completed through an existing broker-dealer or a new type of vehicle known as an “investment portal.” In addition to the SEC, the Financial Industry Regulatory Authority (FINRA) has to create rules for how the portals will be overseen by them. According to the press report, the proposed rules will not require a company to verify an investor’s income to determine what limits apply on their ability to invest.

Of course we are all anxious to see how the rule proposal looks. It will likely be a pretty complex document. And then the big question: will companies find benefit in using this method of financing, and will brokers and “portals” see enough money to be made assisting them? For the sake of capital formation and the goals of the JOBS Act, one hopes so.