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Calls for Crowdfunding Rules Grow Louder

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Crowdfunding advocates, small businesses and venture capitalists held an all-day vigil in Washington on Tuesday with visits to Capitol Hill, the Securities and Exchange Commission and the White House to push for “immediate action” on rules that would make equity- and debt-based crowdfunding a reality in the U.S.

During a media briefing held at the National Press Club in Washington, Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, who hosted the gathering, said “the capital needs of entrepreneurs remain just as critical as when the JOBS Act was signed last April.” Now, she said, “the SEC must take the next step and finalize its rulemakings so the JOBS Act can fulfill its promise of helping to fund promising businesses, and bring the economy back to robust levels of growth and job creation.”

But Candace Klein, co-chairwoman of the Crowdfund Intermediary Regulatory Advocates (CFIRA) and CEO of SoMoLend, a crowdfunding company, said that despite the fact the crowdfunding industry has had nearly 30 meetings with SEC staff as well as the Financial Industry Regulatory Authority, and SEC staff is “working diligently” and has “come far” in drafting proposed crowdfunding rules, there is no “proposed timeline” on when the SEC would release those rules.

Klein said she believed the proposed rules were ready to be released for public comment, and encouraged current SEC Chairwoman Elisse Walter to act. If the proposal went out soon, there could be “some type of implementation” of the crowdfunding rules by “the fourth quarter,” Klein predicted. However, she noted the nomination of Mary Jo White to be the next head of the agency puts a further question mark on that date.

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With fraud as the SEC and state regulators’ main concern about crowdfunding, Klein said that the crowdfunding industry has been “proactive to provide investor education and in tracking ‘bad boy’ behavior.” She noted that the industry has looked at other countries where crowdfunding is legal and has adopted their best practices. “We have put together a best-practices guide. Everyone keeps talking about fraud, but with debt- and equity-based crowdfunding the cases of fraud in other countries is quite low,” she said. “We are working with the SEC to help parse out the differences between fraud and failure.”

FINRA issued on Jan. 10 a voluntary Interim Form for Funding Portals designed for prospective crowdfunding portals under the JOBS Act.

The North American Securities Administrators Association (NASAA) fired off a warning in December that crowdfunding’s presence on the Internet had exploded in recent months and that NASAA saw a big potential for abuse.

Nearly 8,800 domain names are now using the term “crowdfunding,” up from less than 900 at the beginning of the year, NASAA said.