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Mass. Regulator Galvin Issues ‘Emergency’ Crowdfunding Exemption

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The Massachusetts Securities Division said Thursday that it had adopted a “crowdfunding exemption” for offerings within the state.

Secretary of the Commonwealth William Galvin said that “the emergency regulation” takes effect immediately, and permits Massachusetts companies to raise capital from Massachusetts investors.

The exemption covers intrastate offerings over the internet that would typically raise capital from many investors, each of whom would invest a limited amount.

“This exemption will enable Massachusetts startups and entrepreneurs to more easily use the internet to raise capital, which I hope will, in turn, give a boost to the Commonwealth’s economy and foster job growth here,” Galvin said in a statement. “And a carefully crafted regulation such as this offers protections for investors and companies using this new form of generating capital.”

The North American Securities Administrators Association says that 15 jurisdictions in addition to Massachusetts have, either through legislation or regulation, offered similar crowdfunding exemptions.

Under the Massachusetts exemption, business entities such as corporations, limited liability companies and limited liability partnerships can raise up to $1 million in a 12-month period – up to $2 million if the company has audited financial statements.

The crowdfunding exemption is not available to certain types of issuers: blind pool and blank check offerings; investment companies; hedge funds, commodity pools, and similar investment vehicles; and businesses involving oil and gas exploration or production, mining or other extractive industries.

Investors with an income or net worth greater than $100,000 may invest up to 10% of the greater of the two or $100,000, whichever is greater. Those who don’t meet those thresholds are limited to 5% of their income or net worth or $2,000, whichever is greater.

Issuers must meet the federal rules on crowdfunding in the Securities Act and the Securities and Exchange Commission Rule 147.


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