The Securities and Exchange Commission and state regulators are warning small businesses and entrepreneurs to hold off on joining the “crowd.”
In a late June advisory, state regulators warned small businesses that they should wait until the SEC has finalized its crowdfunding rules before offering shares in any such ventures for public sale. “Until that time, federal and state securities law prohibitions remain in place against publicly accessible Internet securities offerings,” said the North American Securities Administrators Association (NASAA), the state regulators’ trade group.
Indeed, the chief counsel of the SEC’s Division of Corporation Finance, Thomas Kim, told the SEC’s Investor Advisory Committee during its first meeting in May that as part of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in April, the division is grappling with the issue of equity crowdfunding, which allows investors of any net worth to fund entrepreneurial startups. (For more on the net worth requirement, see “Challenges and Opportunities in the JOBS Act.”) “Crowdfunding is not yet legal until the commission appoints rules,” Kim said.
The JOBS Act directs the SEC to adopt rules within 270 days to implement a new exemption to allow entrepreneurs and small businesses to offer investments in their ventures through crowdfunding. But Kim said that a time frame for an SEC rulemaking on equity crowdfunding is “challenging.”
SEC Chairman Mary Schapiro told a Congressional panel in late June that staff in the agency’s divisions of Corporation Finance and Trading and Markets as well as agency economists are “working closely together” to develop recommendations for the Commission.