April 21st, 2017
On The Proposed SEC Regulations & Crowdfunding: Let’s Get It Right, Chairman White
There was an air of euphoria in the crowdfunding community on October 23 when the U.S. Securities and Exchange Commission finally issued its proposed crowdfunding rules – a necessary step to implement equity crowdfunding, as dictated by Congress in the JOBS Act of 2012 (“Jumpstart Our Business Startups Act”). Though Congress had laid out a nine page roadmap creating an entirely new market structure, implementation was dependent on the SEC promulgating rules to implement the will of Congress – something the SEC was ordered to do by January 1, 2013.
OK, so the proposed rules arrived a little late – 274 days to be exact. At least we have a Chairman at the SEC who appears committed to “getting stuff done,” whether or not it suits her views on a particular issue. Besides, the vote of the Commission on the proposed rules was unanimous, unlike the contentiousness which ushered in the Title II rules in July 2013.
By all appearances it seemed that despite the worst fears of some Crowdfund proponents, the SEC was committed to get the job done – and done right. At least that was the hope.
The verdict surrounding the SEC’s proposed crowdfunding rules has thus far been mixed, generally falling into three categories:
Dismissive – Characteristic of staunch equity crowdfunding naysayers.
Determined – The proposed rules are a good start.
Disillusioned – With all the cost and complexity, why even bother with equity crowdfunding.
But the world looked a little different from my perspective – at least from the vantage point of a securities attorney, nestled in my office in Los Angeles. And had it not been for the wonders of modern technology – electronic transmission of documents via the internet – the scene outside my office might have looked something like this when the 585 page SEC rule proposal finally arrived at my office in Los Angeles with a thud:
Nearly two weeks after plowing through the proposed rules, reaching out to thought leaders in the crowdfunding community and surveying the myriad opinions of prognosticators on all sides of this issue, my conclusion is that despite the best efforts of the SEC, they still have not gotten it right.
The headline in USA Today says it all – albeit all wrong:
The SEC’s proposed rules on crowdfunding could bring investors an alternative to Wall Street’s monopoly on securities dealing, says USA TODAY’s business regulation columnist.
The SEC proposes to let small companies offer shares without going through SEC registration
Proposal strikes balance between protecting investors and letting process work
The last headline, striking a balance between protecting investors and letting the process work, was a view shared by many commentators. While the rules may have struck some sort of balance, if these rules are enacted as proposed the process may work – but it will not work well. And though the rules in large measure dutifully follow the dictates of Title III of the JOBS Act, as laid out by Congress, they are fatally riddled with the institutional biases embedded in our securities regulatory structure over the past 80 years. And while this structure has worked well for Wall Street, it has not met the needs of startups and other small and emerging businesses – something that the JOBS Act was intended to fix.
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