On October 30, the SEC approved final rules for securities crowdfunding under Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012. Title III lets startups raise up to $1 million per year by selling securities exclusively through registered online intermediaries, i.e., crowdfunding portals and broker-dealer offering platforms. And it permits all Americans to invest from $2,000 to $100,000 in those offerings per year, depending on their net worth and income. Title III offerings will launch in April 2016.
Also known as Regulation CF, Title III will attract millions of new, non-accredited angel investors (people worth less than $1 million and with less than $200,000 in income) over the next few years. Non-accredited investors, roughly 93 percent of Americans, had essentially been locked out of the private securities market under the Securities Act of 1933.
The final rules under Title III are improvements over the proposed rules (released in 2013) in two significant respects:
An unresolved problem for intermediaries, however, is the issue of statutory liability, where funding portals might share liability for misstatements or omissions made by issuers. The final rules gave intermediaries some latitude on this, but didn’t remove the liability burden entirely. Intermediaries are still covered by anti-fraud statutes that apply in all securities offerings.
The final rules also clarify investment limits over a 12-month period based on investors’ net worth and income:
Thus any American can invest at least $2,000 per year, and accredited investors may invest no more than $100,000 per year.
Disclaimer: I am not a lawyer, and I have not read the entire 680-page final-rule document that the SEC released a few days ago. My summary and interpretation of the rules is based on a selective reading of the SEC document and comments from lawyers and other professionals in the crowdfunding industry. I will update this summary with more details, and clarifications if necessary, in the weeks ahead.
— David M. Freedman has worked as a financial and legal journalist since 1978. He is a coauthor of Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms, (Wiley & Sons, June 2015). Website: www.ec4i.com.
David M. Freedman has worked as a financial and legal journalist since 1978. He has served on the editorial staffs of business, trade and professional journals, most recently as senior editor of The Value Examiner (National Association of Certified Valuators and Analysts). He is coauthor of Equity Crowdfunding for Investors, published in June 2015 by…
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