In this alert, we provide a detailed overview of the proposed regulatory framework that will be applicable to crowdfunding offerings conducted pursuant to Title III of the JOBS Act in reliance on Section 4(a)(6) of the Securities Act. As we have noted in our prior initial observations related to the rules proposed by the Securities and Exchange Commission, or SEC, in late October 2013, implementing the Congressional mandate to formulate a framework for crowdfunded offerings, whether or not one intends to avail oneself of this new offering exemption, the tailored approach taken by the SEC and by FINRA in their proposed regulations merits a close look. Both the SEC and FINRA acknowledge that regulation of these offerings requires adapting disclosure-based principles and the existing approach to broker-dealer regulation and oversight to an entirely new public offering rubric. While drawing on these well-established principles, the SEC’s and FINRA’s proposed rules stand out because the proposed rules attempt to provide a scaled or “right-sized” approach. For example, the SEC’s proposed rules would establish limited disclosure requirements for issuers that rely on crowdfunding, as well as limited ongoing reporting requirements for these issuers, although these issuers will not be SEC-reporting companies for the purposes of other SEC requirements. This is novel. Similarly, both the SEC’s and FINRA’s proposed rules relating to funding portals establish a pared-down regulatory framework that acknowledges the limited functions of a funding portal. We hope our discussion below provides a perspective as to whether the SEC and FINRA have struck the right balance in designing regulations that facilitate crowdfunding while promoting investor protection concerns.
To read our alert, please visit: http://www.mofo.com/files/Uploads/Images/131115-SEC-FINRA-Crowdfunding.pdf.