The government is back in business and the SEC wasted no time in releasing their proposed crowdfunding rules, all 585 pages of them! This is the U.S. government at its finest… take a simple concept that is supposed to connect regular people with companies that need capital, and turn it into a complicated issue. The proposed rules passed the commission that is made up of both Democrats and Republicans and now the public has 90 days to comment. The challenge is with 585 pages of rules, will the public understand all of the nuances and the legalese contained within the guidelines? This is not an insult to the general public, simply a statement of the obvious fact – the general public is busy and that is a lot of information. We will do our best to help out by breaking down the rules for you in several blog posts.
Here are some of the initial highlights from the SEC’s proposed crowdfunding rules:
- Companies that are running crowdfunding campaigns can simultaneously raise capital through a private placement offering.
- Companies are capped at raising $1 million in a 12 month period through crowdfunding.
- Investors are limited on how much they can invest per year based on their income levels. The exact verbiage is, “$2,000 or 5 percent of annual income or net worth of the investor, whichever is greater, if both the annual income and net worth are less than $100,000; and (ii) 10 percent of annual income or net worth of the investor, whichever is greater, not to exceed an amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000”
- We have not identified anywhere in the documents that describes if or how a company needs to verify an investor has not invested above their set annual limit.
- Companies selling stock need to disclose if they have debt, and if so how much.
- Crowdfunding sites or portals will have to go through a registration process with the SEC and the Financial Industry Regulatory Authority.
- Individual states may also require further registration.
- Record keeping and anti-money laundering procedures will be required of crowdfunding sites.
- Crowdfunding portals wont be able to select which companies they allow to use their site, other than working with certain industries only. The SEC believes that if a site picks which companies can use them it would appear to be giving investment advice to consumers. In order to avoid the appearance of an endorsement sites will have to accept everyone.
These rules are not final, simply proposed. It is important for anyone involved in the industry and concerned citizens to analyze what the SEC has proposed, identify the rules that could be harmful to the process, and send a comment to the SEC for review. You can view the full SEC crowdfunding rules HERE. Stay tuned for further details as we continue to research the proposed SEC crowdfunding rules.