Nearly three years after the Congressional deadline to adopt rules to implement crowdfunding under Title III of the JOBS Act of 2012, the SEC has announced that it will vote on October 30, 2015 on the adoption of draft rules first published in 2013. http://www.sec.gov/news/openmeetings/2015/ssamtg103015.htm?_ga=1.94118175.326329035.1446044009
Title III of the JOBS Act, which passed Congress on a bipartisan basis and was signed into law by President Obama in April 2012, was one of the most sweeping changes to U.S. securities laws in decades.
In addition to the changes it made to Regulations A and D, the JOBS Act also amended the Securities Act of 1933 to create a new exemption under Section 4(a)(6) for securities that were issued through licensed “funding portals”. Securities issued under this new exemption would be limited to $1 million per year. The JOBS Act also contemplated limits on the amount that could be invested by any individual investors. These amounts were to be $2,000 or 5% (whichever is greater) for people earning (or worth) up to $100,000, and $10,000 or 10% (whichever is less) for people earning (or worth) $100,000 or more.
What made this new exemption under Title III of the JOBS Act so revolutionary is that it allowed the issuer of the securities to advertise the availability of its securities publicly and to openly solicit investors to explore the offering. The other exemptions traditional used by small businesses under the 1933 Securities Act generally required that there be no public solicitation or advertising of the sale.
Congress left the implementation of Title III of the JOBS Act to the SEC, however, and put forth few rules in the statute to define “funding portal” and the kinds of rules that would govern funding portals. Many industry participants assumed that funding portals would get paid out of the proceeds of the securities offering, however, and that concept ran afoul of other traditional assumptions within the SEC’s jurisdiction that generally prohibited persons from taking commissions on the sale of securities unless those persons are licensed broker-dealers.
Because of the lack of affirmative direction on this point in the JOBS Act and the SEC’s reluctance to open a crack in the door that had long remained closed against the collection of commissions by unlicensed broker-dealers, the SEC labored for a long time over how to regulate funding portals.
The SEC’s draft rules, released in 2013, require funding portals to be licensed by FINRA, but mandated a less rigorous level of examination than that imposed on broker-dealers. Since then, FINRA has also adopted a set of rules for funding portals, which became effective several weeks ago. (FINRA’s finalization of its rules was thought by many to be a leading indicator of the SEC’s coming adoption of its own rules).
Presumably, by announcing a date for the vote, the SEC is prepared to adopt its proposed rules which would be effective after a final version of the rules is published in the Federal Register.
About the Author
Jonathan B. Wilson is a partner in the Atlanta business law firm of Taylor English Duma. He has practiced as an attorney for nearly 25 years and has served as the in-house general counsel for two public companies. He represents Fortune 100, middle-market and start-up companies in matters involving securities, corporate finance and governance, mergers and acquisitions, and intellectual property. He is a frequent speaker and writer on the JOBS Act, crowdfunding and Regulation A+.