SEC Expected to Propose 'Crowdfunding' Rules
Source: Wall Street Journal
WASHINGTON—The Securities and Exchange Commission is set to propose rules allowing entrepreneurs to tap large numbers of ordinary investors for small amounts of capital, advancing long-delayed “crowdfunding” provisions from last year’s Jumpstart Our Business Startups Act.
Supporters hope small businesses and entrepreneurs will be able to raise money using online “portals,” where thousands of investors can pore over the financial information of small companies and choose promising investments. The portals are expected to be operated by broker-dealers and overseen by the Financial Industry Regulatory Authority. “This is game changing,” said Sherwood Neiss, principal at consulting firm Crowdfund Capital Advisors.
The JOBS Act requires the SEC to alter its rules so companies can raise up to $1 million annually through crowdfunding sites. Currently, companies are barred from issuing shares in exchange for capital without first registering with the SEC. They also cannot sell investments in privately held companies to investors who are not “accredited,” or wealthy.
Supporters said Wednesday’s proposal marks a significant fundamental departure from the SEC’s historic role of mandating public companies adhere to an extensive disclosure regimen before they can sell their shares in public markets. Companies that use crowdfunding to raise money will still face regulation, but the aim is to allow crowds to decide which ideas warrant equity investment based on barebones disclosure.