U.S Securities and Exchange Commission proposes Crowdfunding Rules

The JOBS Act, which passed 390-26 in the House and 73-26 in the Senate, was designed to ease restrictions on capital-raising across a broad spectrum of finance, from IPOs to private placements and start-up seed financing. It left regulation to the U.S Securities and Exchange Commission (SEC), where the subject has been mired in rulemaking delays.

-- Here’s a summary of the proposed rules:

~ Crowdfunding caps an amount an issuer can raise to $1 million in any 12-month period.

~ Crowdfunding caps the amount a person can invest in all crowdfundings over a 12-month period at 10% of annual income or net worth (incomes of $100,000 or more) or the greater of $2,000 or 5% of annual income or net worth (incomes of less than $100,000).

~ Crowdfunding must be done through a registered broker-dealer or registered “funding portal.” Broker-dealers and funding portals may not solicit investments, offer investment advice or compensate employees based on sales. Traditional investment banks have shown little interest in crowdfunding, leading to speculation that crowdfunding will be facilitated by lesser-known financial institutions with little or no retail investment track record.

~ Crowdfunding requires a disclosure document to be filed with the SEC at least 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of over $500,000.

~ Unlike Regulation D Rule 506 private placements to accredited investors following the JOBS Act, crowdfunding does not allow advertising except solely to direct investors to the appropriate broker/funding portal.

~ Annual reports must be filed with the SEC by a company which completes a crowdfunding round.

- The full text of the SEC’s proposed crowdfunding rules HERE.