Delaying Crowdfunding to Save Crowdfunding?

By Jonathan Wilson, CrowdFunding Beat Guest Contributor, Corporate Counsel at Taylor English Duma LLP,

 

Berkeley Law Professor, Stephen Solomon, writing in the New York Times, suggests that the SEC’s “dawdling” with crowdfunding rules may be having the effect of “saving crowdfunding.”

sec (2)

There is a little truth to that. Issuing crowdfunding rules by the end of 2012, as was required by the JOBS Act, would have squelched efforts by the states to adopt their own crowdfunding rules. Instead, with the SEC deciding that it is not obliged to follow laws passed by the Congress and signed by the President, there has been more than enough political oxygen for the states to experiment with crowdfunding in the limited sphere permitted under the 1933 Act and SEC Rule 147 for intrastate offerings.

As I’ve written before, intrastate crowdfunding has created opportunities for small, locally-focused financings, largely involving real estate. Real estate projects satisfy the 80% of assets test under Rule 147 and generally have the kind of local interest needed so that 100% of the investors involved will be resident in the state.

But if the SEC’s refusal to follow the law by issuing regulations has saved crowdfunding, it’s more a matter of “bombing the village in order to save it.”

The SEC’s worries about fraud in crowdfunding appear to be a knee-jerk reaction to change, more justified in theory than in practice. The SEC’s solution to the fraud problem, proposing that most crowdfund issuers obtain and disclose audited financial statements would do little to eliminate fraud and would make most crowdfund offerings prohibitively expensive.

(If you are truly a fraudster, and wanted to bilk investors through crowdfunding, you could create a new entity, obtain audited financials (your de novo startup would have no historical financial results to audit) and still make off with the proceeds of your crowdfund offering.

If the SEC really wants to save crowdfunding it would be better served by listening to practitioners involved in raising capital for small business and to adopt rules that are more carefully calculated to work in the real world.

Jonathan B. Wilson is a corporate partner at Taylor English Duma and represents small and growing businesses in securities and financial matters. He blogs often atwww.emerginglawblog.com (Cross posted)

Written by
Jonathan Wilson

Jonathan Wilson Corporate Counsel at Taylor English Duma LLP,

Tags: , , , , , , , ,

HEADLINE NEWS

ForbesThe Ultimate Pre-Launch Crowdfunding ChecklistForbesCrowdfunding is not limited to the platform where you launch your campaign. Instead, it has become a valuable way to transform your idea into a mainstream business. In order to head in that direction, you must execute a number [...]

The AustralianIgniteme heats up crowdfundingThe Australian“The only other comparable film that raised money through crowdfunding would be Crocodile Dundee, but not all funding came from the crowd.” Mr Morello said the idea behind the platform was relatively simple — giving new and bud [...]

DVS Gaming (registration) (blog)Crowdfunding: How Does it Help Indie Developers?DVS Gaming (registration) (blog)2012 is when crowdfunding really blew up, prior to 2012 the average amount of money devs would receive could range from 10k-100k. By today's standards, that's stil [...]

The MemoCrowdfunding has become a 'monster' argues its greatest criticThe MemoBrown has become a thorn in the side of this blossoming industry, even more so as it's clear his blog is now even read by regulators at the Financial Conduct Authority. The Memo sat down with [...]

U.S. News & World ReportNo Cash for Hate, Say Mainstream Crowdfunding FirmsU.S. News & World ReportThe block on mainstream crowdfunding is just the latest blow to far-right activists operating online. In the last 24 hours, neo-Nazi website the Daily Stormer had its domain regi [...]

LivemintFinding the right balance on crowdfundingLivemintSecurities market regulator Sebi (Securities and Exchange Board of India) has been trying to get a handle on digital platform-based crowdfunding since at least 2014, when it issued a cautiously positive consultation paper. It fl [...]

Crain's Cleveland Business'Smaller' gifts can go long way for Clinic's crowdfunding platformCrain's Cleveland BusinessFor an institution accustomed to securing multimillion-dollar donations, Cleveland Clinic's latest fundraising effort has some relatively [...]

Australian Brews NewsBrewery crowdfunding effective overall: PozibleAustralian Brews NewsEquity crowdfunding by breweries overseas has been effective overall, despite some high profile failures, according to Pozible. The largest reward-based crowdfunding platform in the Asia Pacific, [...]

FortuneUncensored Social Network Gab Raises $1 Million in Crowdfunding CampaignFortuneA crowdfunding campaign for Gab, a Twitter-like social network that touts its commitment to freedom of speech, surpassed $1 million yesterday. The company claims it is politically neutral and committ [...]

Crowdfund InsiderIsraeli Crowdfunding Platform ExitValley Self Crowdfunds, Plans UK ExpansionCrowdfund InsiderThe digital platform to book parking anywhere raised $2 million – a portion of that, $270,000, reportedly came from ExitValley. To date the self-crowdfunding offer has raised [...]

CFB Finance

Marketwired

  • 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 |