In a recent article titled JOBS Act State of the Union (well worth a read in full), Samuel Guzik makes the case that the SEC has given up on creating rules to implement Title III crowdfunding under the JOBS Act. Title III of the JOBS Act established a framework for investments in private offerings via “crowdfunding portals” by average investors (no “accredited investor” threshyold). Representative Patrick McHenry of North Carolina introduced crowdfunding legislation in 2011 that served as the basis for Title III, but by the time the proposal emerged from the messy legislative process, it was burdened with requirements relating to the involvement of FINRA intermediaries, company disclosure, financial statements, and low fundraising thresholds that soured many entrepreneurs on the utility of the proposal. The SEC proposed rules to implement Title III in October 2013 which included additional requirements that would be burdensome for small and emerging companies (such as the requirement that companies seeking to raise more than $500,000 must have two years of audited financials). As of last December, the SEC’s rule-making agenda called for final rules on equity crowdfunding by October 2015, with Mary Jo White indicating that the SEC had no “drop dead date” in mind for publishing final rules. Mr. Guznik argues that, in light of changes in the balance of power in Congress and certain clues from the agency, the SEC may abandon rules to implement Title III altogether and wait for new crowdfunding legislation that may be likely this spring, perhaps again from Representative McHenry. Mr. Guznik also presents evidence that there is growing momentum for legislation to create “venture exchanges” that would act as “a secondary market a notch below the current national markets, but with right sized corporate governance requirements and trading rules better suited to the less liquid, smaller cap companies.” If he’s right, the summer of 2015 may see new legislation on both equity crowdfunding and venture exchanges.
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