By Steve Cinelli, CrowdFundBeat Contributing Editor. Let’s be straight.  The JOBS Act, while intended for great things, many of which still to be achieved, has been challenged in one particular area – Title III Crowdfunding.  While Mr. President signed the Act some time ago, the implementation of Title III was passed on to the Securities and Exchange Commission (SEC) for review and institution.  For those unfamiliar with Title III, its simple agenda was to allow every day investors, not the accredited sort, to participate in investing in privately held companies.  The SEC, after a year or so, authored a 585 page tome as to how such every day investors can participate, subjecting offering companies to some fairly extensive and expensive processes and disclosures, and limiting the investment activities of such investors based on their individual resources, rendering the Title III proposition largely untenable.


While admirable, the Big Brother approach spanks of inconsistency and dismissal of what crowdfunding aspires to accomplish in light of other existing allowances.  We can bemuse the discussion with why no one is looking out for those spending one’s life savings on lottery tickets or the crap table in Vegas.  Or possibly the vacation of all vacations.   Is there a separate financial conscious governing such crowdfunding activity?


True, this is a heavily regulated, legislated, fiduciary minded environment, that of the world of investing in securities.   A consequence of the Crash of 1929, the Roosevelt Administration formed the SEC to regulate the securities industry with three major pieces of legislations, commonly referred to as the Securities Act of 1933 (governing disclosures), the Securities’ Exchange Act of 1934 (governing secondary trading), and the 1935 Public Utility Holding Act (governing utility control).  About 80 years later, these Acts still create the fabric of our securities industry, and serve as the foundation of many other international markets.  As with our Constitutional documents, the spirit and crafting of these Acts are admirable, conscientious and sound, drafted with the best of intentions.  But there needs to be consistency, which I submit, is lacking.


While most are familiar with the major public exchanges, say the New York Stock Exchange and NASDAQ, where thousand of companies float their shares and active and transparent trading is facilitated, in compliance with the Acts above, there are also other platforms for investing and trading securities accessible to all investors, namely the Over the Counter markets, which beat to their own drummer.   Companies that trade, or rather quoted on the OTC markets, do not need to meet the minimum requirements or file with the SEC, yet they are commonly accessible to all investors, regardless of financial acumen or capacity of such investor.


I have had recent experience with what are referred to as the Pink Sheets or Grey Sheets, and have marveled on how prices rise and fall within minutes based on press releases, innuendo, and communal support or lack thereof.  It simply is fascinating theatre how this market seems anything but an investment market, but rather a trading environment where an investor’s hold may be calculated in minutes not months or years, and price swings are measured like acceleration rates 0 to 60 in seconds.  And as these companies aren’t required to file with the SEC, the lack information or disclosure seems antithetical to the desires to govern the crowdfunding phenomena.   A dichotomy of regulation?


As a supporter of capital formation for emerging companies, the crowd environment and those that endorse it, proffer disclosures in many ways, engaging the investor community, hopefully enhancing and improving the investor experience.  True, many of the companies funded through crowd platforms may not succeed and losses may be severe.  But the basic tenet of the SEC in its oversight of the securities environ is to advocate for disclosure for informed investment decision making, which the CF industry is advocating, and that investment wins and losses shall be gauged by the execution and performance of the underlying company, rather than having investment capital evaporate in a trading environment based on hearsay, speculation and negligible hard data.    So I ask, what’s the issue with a set of disclosure standards that are reasonably supplied and cost effective to enable the next generation of companies to advance under a crowd funding platform and acknowledged by the SEC, while the same Commission allows suspect companies and any investor to speculate any amount of funds with literally no disclosures?   Again, a bit of inconsistency here.

As a footnote, did you know that the formation of the SEC was on June 6, 1934, exactly ten years before D-Day, June 6, 1944?  Coincidence?  Well maybe eight decades later, June 2014, maybe some new history will be written to advance a more consistent capital formation protocol for small companies.

Steven Cinelli

Founder | CEO at PRIMARQ

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