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SEC to propose monumental crowdfunding rules on Wednesday

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Washington Post | J.D. Harrison  |  October 22, 2013

Mary Jo White 300x230 - SEC to propose monumental crowdfunding rules on WednesdayIt was supposed to take 270 days. Instead, it has taken about twice that long.

On Wednesday, though, federal regulators will come one step closer to allowing people to purchase equity in start-ups through new online “crowdfunding” marketplaces.

The Securities and Exchange Commission plans to formally propose rules on Wednesday authorizing companies to widely sell securities through the online portals, the agency announced late Monday. Currently, firms can offer equity crowdfunding deals only to accredited investors.

Related:  View 'Sunshine Act' Meeting page on the SEC's website

Once the proposed rules are issued, the five-member board plans to vote whether to move forward on them. If approved, the rules will enter into what is expected to be a lengthy comment period before they would take effect.

“For the first time in history, investors will be able to use these portals to deploy capital in the form of equity and get a rate of return,” Vince Molinari, founder and chief executive of GATE Technologies, an online trading company, said during an entre­pre­neur­ship forum on Friday at George Washington University. “The ability to aggregate a bunch of individuals around a common funding goal is absolutely game changing.”

Mandated by the Jumpstart Our Business Startups Act signed last March, the change is meant to free up more capital for entrepreneurs and spur more investments in promising young companies. Congress charged regulators with establishing new rules within 270 days of the president signing the law, however, concerns over investor protections and a leadership change at the SEC have slowed the process.

On Monday, just hours before the agency’s announcement, a bipartisan group of eight senators sent a letter to SEC Chairman Mary Jo White urging her department to speed up the process and issue rules to govern crowdfunding. Sens. Jeff Merkley (D-Ore.) and Michael Bennet (D-Colo.), who originally authored crowdfunding legislation that was later woven into the JOBS Act, were among those who signed the letter.

“We are concerned that so much time has passed without action,” the senators wrote, noting that the provision is expected to provide a mechanism for small and new businesses to access capital crucial to job creation and growing our economy.”

Criticism started to mount early this year, as the original deadline passed with no rules in sight.

Related:  Canadian Crowdfunding Directory

“The SEC has delayed implementation for lots of people who would like to take action, and they are getting frustrated and frustrated and more frustrated by the fact that the rules have not come out,” Alan Patricof, founder of Greycroft Partners, a venture capital firm based in New York and Los Angeles, said during an event earlier this year in Washington.

SEC officials have repeatedly said they are working as quickly but also as carefully as possible to craft rules that balance the legislation’s intent of easing financing regulations for entrepreneurs with the need to shield a less wealthy, less sophisticated class of equity investors.

When the rules are proposed Wednesday, for instance, crowdfunding advocates will be watching to see who regulators task with keeping track of new investor limits, which preclude those earning less than $200,000 a year from investing more than a certain percentage of their income through crowdfunding. A report by Bloomberg last week suggested the onus will not fall on the companies, leaving the responsibility in the hands of either the investors, crowdfunding portals or private securities regulators.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more eBrochure | Prezi or contact us at

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