The Securities and Exchange Commission passed by a 3-1 vote on Friday long-awaited final equity crowdfunding rules and proposed to update rules on intrastate crowdfunding.
The dissenting vote was cast by the only Republican commissioner, Michael Piwowar, who said on the day before Halloween that he believed “traps hidden” in the final rules would “spook” small companies and investors from participating in crowdfunding.
“While crowdfunding was intended to be a treat for the smallest and least sophisticated companies seeking to raise capital, today’s rules are full of tricks,” Piwowar said. “The rules will spin a complex web of provisions and requirements for compliance,” adding that he fears “many traps for the unwary are hidden in the regulations, creating potential nightmares for small-business owners that fail to place regulatory compliance at the top of their business plans.”
The SEC also issued proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through crowdfunding.
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The final equity crowdfunding rules allow the “offer and sale of securities through crowdfunding,” and give small businesses an additional avenue “to raise capital and provide investors with important protections,” SEC Chairwoman Mary Jo White said during the open meeting at SEC headquarters in Washington.
The rules — three years in the making — would complete the Commission’s major rulemaking mandated under the Jumpstart Our Business Startups (JOBS) Act. White said Friday that the final rules were a “full re-evaluation” of the proposed rules the Commission first floated in 2013.
The Financial Industry Regulatory Authority, which is charged with regulating broker-dealers that intend to develop Internet funding portals, filed with the SEC on Oct. 22 its proposed rule changes for funding portals, including the registration rules, and is waiting for Commission action, SEC Commissioner Luis Aguilar stated at the meeting. He urged the Commission and staff to “expedite the review of FINRA’s application.”
Funding portals are required to register with the Commission and to become FINRA members.
While the SEC noted the importance of monitoring the progress of the new rules that allow nonaccredited investors to invest in startups and other private businesses, financial services firms applauded the SEC’s adoption of the crowdfunding rules.