August 19, 2014
As widely reported, the Securities and Exchange Commission (SEC) has been spending a significant amount of time developing the rules that would apply to offerings under the highly publicized “crowdfunding” exemption under § 4(a)(6) of the Securities Act. Originally the SEC had 270 days from April 5, 2012, to develop and issue those rules;; however, the SEC failed to act until October 23, 2013 when it finally issued proposed rules and forms that would implement the “crowdfunding” exemption provisions including: (1) Regulation Crowdfunding, a new regulation that would govern offerings made in reliance on the § 4(a)(6) exemption, provide a framework for the operations of “crowdfunding” intermediaries (including funding portals and brokers) and create a registration regime for funding portals, place restrictions on the resale of securities sold in § 4(a)(6) offerings and exempt securities sold in § 4(a)(6) offerings from counting toward the Exchange Act § 12(g) registration threshold; (2) Form C, a new form that issuers in § 4(a)(6) offerings would be required to file before the commencement of a § 4(a)(6) offering, during the pendency of an offering to report progress toward the funding goal and certain changes to the offering or updates (when applicable), annually after completing a “crowdfunding” offering and at the conclusion of their Form C reporting obligations; and (3) Form Funding Portal, a new form that funding portals would file to register with the SEC, to update information and to terminate their registration. On the same day, FINRA issued a regulatory notice soliciting comments on proposed rules and forms that would govern SEC-registered “crowdfunding” portals.
The SEC accepted public comments on the proposal through early February 2014 and the SEC staff is reviewing the comments to determine what changes should be made before presenting a final proposed to the SEC for consideration. Among other things, commentators focused on a proposed requirement that companies seeking more than $500,000 must prepare and release audited financial information, a burden that small firms argue will make “crowdfunding” too expensive to be a viable alternative for raising money. The SEC has repeatedly announced that finalization of the “crowdfunding” rules is a priority for 2014; however, it remains to be seen whether this will happen and whether “crowdfunding” will be adopted and used in the marketplace.