SEC Adopts Restrictive Crowdfunding Rules
The SEC has adopted JOBS Act-required crowdfunding rules that limit the use of crowdfunding and the amount invested by each investor and impose regulatory requirements on intermediaries. Companies may utilize crowdfunding (i.e. raising capital through internet portals) to raise a maximum of $1 Million over a 12-month period but must ensure that securities sold to each investor do not exceed 10% of each investor’s annual income or net worth. Only operating companies (i.e. no shell companies or investment companies) may utilize crowdfunding and must deliver significant disclosure including financial statements, a business plan, and information about officers, directors, and related-party transactions. Crowdfunding platforms must register with FINRA, and all intermediaries must provide disclosure about compensation and ensure investor eligibility.
OUR TAKE: Although Congress required the SEC to allow crowdfunding, the SEC has issued rules so restrictive that most firms may prefer to go the more traditional routes of a Regulation D offering or a public registration.