Advocates push SEC to propose crowd funding rules

Proponents want rule, critics worry about investor protection

Feb 19, 2013 @ 3:16 pm

By Mark Schoeff Jr.

About a dozen crowd funding and venture capital representatives and small-business advocates on Tuesday urged Securities and Exchange Commission Chairman Elisse Walter to propose rules for crowd funding.

A type of financing that lets small investors buy equity or debt in startups over the Internet, crowd funding is among several provisions of the Jumpstart Our Business Startups Act — signed by President Barack Obama last April — designed to ease securities registration rules for entrepreneurs.

The SEC has not yet proposed a crowd funding rule, which was due in January. It is one of several JOBS Act rules that have fallen behind schedule.

“Chairman Walter has the ability to call forward these rules for public comment,” Candace Klein, founder and chief executive of SomoLend, said at a National Press Club press conference. “As an industry, we are being as proactive as we can to answer the SEC's concerns about investor protection.”

Supporters of the act, which was approved by large bipartisan majorities, say it would help spur economic growth and create jobs by providing capital to small businesses. Skeptics, including state regulators, warn that diluting registration requirements could harm investors. They want the SEC to add more protections.

But SEC leadership is in transition. The president has nominated Mary Jo White, a former U.S. attorney and Wall Street defense lawyer, to be SEC chairman. Ms. Walter will serve in that role until Ms. White is confirmed by the Senate. It's not clear whether the agency will promulgate a crowd funding rule before Ms. White arrives.

“We've been working very hard on this complex rulemaking effort and very much appreciate the extensive input we've received from potential crowd funding participants and others,” SEC spokesman John Nester wrote in an email. “We will continue working hard amid a busy rulemaking agenda to get these crowd funding rules done as soon as possible, with an emphasis on getting them right.”

Crowd funding advocates were scheduled to meet with White House and SEC staff and conduct a Capitol Hill briefing on Tuesday.

They argue that crowd funding is a safe way for small businesses — ranging for technology startups to coffee shops — to raise capital. They note that the JOBS Act contained several investor protections, including caps on the amount of securities that can be purchased. In addition, funding portals have built-in investor education and disclosure features.

The North American Securities Administrators Association is not convinced.

“Our concerns about the fraud potential facing investors and entrepreneurs related to crowd funding are unchanged,” Heath Abshure, NASAA president and Arkansas securities commissioner, said in a statement. “For crowd funding to have the best opportunity to realize the potential its proponents promised, the SEC must take the time necessary to ensure a reasonable balance between investor protection and the needs of industry.”

The crowd funding market could total $3.98 billion in five years, according to Sherwood Neiss, a principal at Crowdfund Capital Advisors. He based his projection on a recent study by the University of California-Berkeley.

“We have the ability to flip the switch and solve an endemic problem that faces entrepreneurs across the country,” Mr. Neiss said, referring to a lack of capital for small businesses.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Behind the scenes of InvestmentNews' Icons & Innovators

Editor Fred Gabriel and special projects editor Liz Skinner discuss how the editorial team selected the final lineup of honorees.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

RIAs struggle to keep clients grounded amid stock market euphoria

With equities at record levels, financial advisers are confronted with realities of greed and fear.

Regulators showing renewed interest in cracking down on investment fees

SEC, Finra targeting high-fee share classes, 12b-1 fees and failure to give sales load discounts and waivers to investors.

Complexity of new indexed annuities causing concern

Insurers are using 'hybrid' indices as a way to differentiate themselves, but critics contend the products are less transparent, more confusing and don't add financial benefit.

Critics say regulation hasn't curbed overly rosy projections for indexed universal life insurance

They say rule didn't go far enough and more stringent measures may be necessary.

House and Senate reach tentative compromise for tax overhaul

Lawmakers still need to get a cost analysis of their agreement, so it's not yet definite, according to a source.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print