About a dozen crowd-funding and venture capital representatives and small-business advocates last 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, contend that 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.
LEADERSHIP IN FLUX
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 rule-making 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 e-mail. “We will continue working hard amid a busy rule-making agenda to get these crowd-funding rules done as soon as possible, with an emphasis on getting them right.”
Crowd-funding advocates met with members of the White House and SEC staffs last Tuesday.
They argue that crowd funding is a safe way for small businesses 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 Inc. is not convinced.
“Our concerns about the fraud potential facing investors and entrepreneurs related to crowd funding are unchanged,” Arkansas Securities Commissioner Heath Abshure, NASAA's president, 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.