The Securities and Exchange Commission finalized rules that will permit eligible companies to raise money through Internet offerings of their securities—a practice known as “crowdfunding.” Under the SEC’s final rules, a company may raise up to US $1 million in any 12-month period through crowdfunding. Companies taking advantage of the SEC’s new rules will have ongoing SEC-reporting and customer disclosure obligations, including filing an annual report with the SEC and providing it to customers. However, in general, such obligations will be far less onerous than requirements for companies that raise funds through traditional public or even private offerings. All crowdfunding transactions must occur either through an SEC-registered broker-dealer or on a new type of SEC-registered entity—a funding portal. Investors would be limited, during any 12-month period, to purchasing a maximum of US $100,000 in securities through all crowdfunding sources, and potentially much less, depending on their annual income and net worth. As noted by Commissioner Michael Piwowar in his dissenting statement in connection with the SEC’s new rule, “even if you are Warren Buffet or Bill Gates, you are limited to investing no more than $100,000 during any 12-month period in all crowdfunding investments.” In addition, crowdfunding-purchased securities cannot be resold for one year. The SEC’s new crowdfunding rules will be effective 180 days after they are published in the Federal Register, although forms enabling funding portals to register with the SEC will be effective January 29, 2016. At the same time as the SEC issued its final rules on crowdfunding, it also proposed rules to ease some restrictions on exclusively intrastate securities offerings.
Totally Irrelevant (But Is It?): In order to more forcefully express his concerns regarding many of the restrictions in the SEC’s final rules related to crowdfunding, Commissioner Michael Piwowar employed timely Halloween imagery: “While crowdfunding was intended to be a treat for the smallest and least sophisticated companies seeking to raise capital, today’s rules are full of tricks. The rules will spin a complex web of provisions and requirements for compliance … . Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital.” Clever writing, for sure—whether you agree with Mr. Piwowar’s position or not!