Today, the US Securities Exchange Commission (SEC) finally published its rules to enable securities-based crowdfunding (or 'crowd investing') under certain exemptions from Federal securities registration requirements (Title III of the JOBS Act).
The proposal document is some 585 pages long, so it may take some time to fully digest the proposals. Comments are open for 90 days. That review is complicated by various State laws that are being rushed through to permit intra-state crowd investing out of frustration at what is perceived as SEC foot-dragging. And, on this side of the Pond, the FCA's own consultation on crowdfunding, due out this week. A lawyer's work is never done [sighs].
As a reminder, the JOBS Act exemptions apply to transactions by an issuer that meet requirements which include:
- the amount raised must not exceed $1 million in a 12 month period (adjusted for inflation at least every five years);
- individual investments in a 12 month period are limited to the greater of:
- $2,000 or 5 percent of annual income or net worth, if annual income or net worth of the investor is less than $100,000; and
- 10 percent of annual income or net worth (not to exceed an amount sold of $100,000), if annual income or net worth of the investor is $100,000 or more (adjusted for inflation at least every five years); and
- transactions must be conducted through an intermediary that is either registered as a broker, or is registered as a new type of entity called a “funding portal” that is exempt from broker/dealer registration;
- issuers and the intermediaries must provide certain information to investors and potential investors, take certain other actions and provide notices and other information to the Commission;
- the securities acquired through this exemption are also to be exempt from registration requirements.