SEC Proposes Crowdfunding Rules Under the JOBS Act

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November 2013

SEC Proposes Crowdfunding Rules Under the JOBS Act

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The U.S. Securities and Exchange Commission (SEC) recently unanimously voted to issue proposed rules under Title III of the JOBS Act related to crowdfunding. Crowdfunding is a general term for internet-based fundraising characterized by decentralized groups of donors/investors individually committing relatively minor amounts of capital to small businesses, social projects, artistic performances, etc. Popular sites such as Kickstarter and IndieGoGo already provide a crowdfunding platform for the solicitation of donations, while sites like Fundrise, CircleUp and AngelList offer securities using existing securities registration exemptions such as Regulation A and Regulation D. However, under current federal securities laws and regulations, participation in crowdfunding offerings under Regulation D cannot be extended to non-accredited investors, and the use of Regulation A involves an onerous disclosure and review process at both the state and federal levels. The JOBS Act and the recently released proposed rules provide an outline for a regulatory regime that narrowly permits certain issuers, investors and intermediaries to participate in investment-based crowdfunding while attempting to limit the occurrence of fraud.

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