As federal regulators move slowly on equity crowdfunding, states adopt their own rules

JOBS Act. A  Look back “Game Changer” ?Steven Overly | Washington Post | August 24, 2014 – With federal regulations for equity-based crowdfunding still unfinished more than two years after the practice was signed into law, numerous states are moving ahead with their own measures that allow residents to funnel small sums of money to local businesses.

But the deals allowed by state-level crowdfunding are typically smaller in size and scope than those envisioned by the federal crowdfunding provisions, which entrepreneurs and economic development officials alike have heralded as a new mechanism for businesses to raise capital needed for expansion.

Take Maryland as an example. Earlier this year, legislators passed a crowdfunding-light bill that, tentatively starting Oct. 1, will allow Maryland businesses to collect up to $100,000 in $100 increments from state residents in exchange for equity or debt.

That may help a restaurant open a second location, for instance, but it won’t do much to launch the next technology company. Still, state regulators say the funding caps give small businesses the opportunity to raise money without posing a significant financial risk to investors.

Federal “crowdfunding is not going to have those kind of limitations on those deals,” Maryland Securities Commissioner Melanie Lubin said. “When we were in Annapolis discussing it, a $100 investment in a lot of ways is almost a goodwill investment for a local business when you’re a customer of the business.”

In that regard, the Maryland provision tracks closer to donation-based crowdfunding, which has become popular on Web sites such as Kickstarter and Indiegogo. In those instances, the business offers its funders a perk other than equity.

The crowdfunding allowed by the Jumpstart Our Business Startups Act, which was signed by President Obama in April 2012, offers companies the ability to issue securities, such as debt or equity, to micro-investors in exchange for their money.

Twelve states, including Maryland, had adopted equity-based crowdfunding as of Aug. 1, according to the North American Securities Administrators Association. Another 12 states and the District have recently considered or are currently considering provisions.

“Basically you are not seeing the ultimate expression of the goal of the JOBS Act as approved by Congress and the president in terms of unaccredited investors investing in companies on a national basis,” said Richard B. Levin, a regulatory attorney at Baker Hostetler.

Indeed, states can only regulate business within their borders. That means their provisions automatically shrink the scope of a business’s crowdfunding efforts to investors who reside within the state.

“That’s extremely limited, and what I’ve heard anecdotally, not very successful,” Levin said. “You would have to screen everybody and make sure they’re in the state that allows state-level crowdfund investing.”

A company that sells securities to those outside the state risks running afoul of federal law because the Securities and Exchange Commission has not yet crafted rules for equity-based crowdfunding on a national level. The deadline for those rules has passed, and regulators have not provided a new time frame.

Equity-based crowdfunding failed to clear the Virginia General Assembly for that reason. Lawmakers there were concerned a company may violate federal law by selling securities outside the commonwealth, said Ron Thomas, director of the State Corporation Commission’s Division of Securities and Retail Franchising. As a result, any state law is likely on hold until the federal rules are complete, he said.

The District’s Department of Insurance, Securities, and Banking proposed rules earlier this month concerning equity-based crowdfunding that would allow D.C. companies to raise as much as $2 million from city residents. The cap on residents’ contributions is dictated by income and starts at $10,000 for those who make less than $100,000 a year.

Those rules are subject to a 30-day comment period and could go into effect as soon as next month, said Theodore A. Mills, the associate commissioner for securities.

“We did wait for a good while [for the federal rules] and I think our structure will provide an alternative,” Mills said. “Even if they came out with the rule tomorrow, there would be good reason for us to offer this other option.”



This RSS feed URL is deprecated, please update. New URLs can be found in the footers at [...]

NPRAfter Outcry, Crowdfunding Site Patreon Backs Off Plan To Raise ...NPRThe popular crowdfunding service Patreon has backed off plans to change its payment structure, after widespread, vocal and passionate opposition from creators and their fans. Last week, the site announced it woul [...]

TechCrunchHow hate speech crowdfunding outfit Hatreon crept back online ...TechCrunchIf you want to make a living creating white supremacist content, you're probably not going to do it via sites like Kickstarter and Patreon, which prohibit hate speech. Fortunately there's Ha [...]

EntrepreneurWhy Some Small Business Owners Are Turning to Crowdfunding to Save Their CompanyEntrepreneurMany owners of beloved local businesses, especially in pricier cities, have been forced to swallow their pride and appeal to their customers in times of crisis -- a process streamli [...]

CoinDeskKickstarter ICO? Don't Count On It Says Crowdfunding Leader ...CoinDeskThe company most widely associated with crowdfunding, Brooklyn-based Kickstarter, has no plans to get into the initial coin offering (ICO) business. Coming in response to the news yesterday that compet [...]

ForbesCrowdfunding Do's And Dont's From iFundWomen's Karen CahnForbesDuring our conversation, she was transparent in sharing that her first software company, VProud, failed because she “did everything backwards” and spent too much time trying to perfect the product. “Pe [...]

CryptoCoinsNewsCrowdfunding Giant Indiegogo Looks to Make ICOs MainstreamCryptoCoinsNewsCrowdfunding platform Indiegogo has a plan to help initial coin offerings (ICOs) break into the mainstream, even as the U.S. Securities and Exchange Commission (SEC) is ramping up its oversight of [...]

WRAL Tech WireBack story: How, why investor Mark Easley brought crowdfunding platform Localstake to NCWRAL Tech WireRESEARCH TRIANGLE PARK – Earlier this week, WRAL TechWire broke the news that Triangle investor and crowdfunding advocate Mark Easley was bringing Localstake, a crowdfun [...]

Crowdfunding via Customers: Is This The New Startup Capital?Customer ThinkWith more and more companies in a variety of sectors developing new crowdfunding campaigns, it makes sense to ask whether crowdfunding is likely to replace startup capital in the near future. Crowdfunding is qui [...]

TechCrunchFormer Gawker employees are crowdfunding an effort to buy Gawker.comTechCrunchWhile Univision acquired most of Gawker Media's sites last year (and renamed them as the Gizmodo Media Group), the deal didn't include Gawker itself. In fact, BuzzFeed reported last month [...]

CFB Finance


  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |