On April 5, 2012 President Obama signed the JOBS Act into law. In accordance with the JOBS Act requirement that all crowdfunding platforms (i.e. websites and intermediaries) be a member of a national securities association, the new self regulatory organization (SRO), The Crowdfunding Intermediary Regulatory Association (CFIRA) has already been formed. The CFIRA will be charged with ensuring investor protection and market integrity. The CFIRA will have members from crowdfunding investor intermediaries as well as related industries such as venture capital firms. In addition to regulating its members, the CFIRA will provide investors with information such as learning about crowdfunding and its risks.
Opportunity For All Americans
Crowdfunding provides an opportunity for all Americans, whether accredited or not, and whether connected with an elite investment banking firm or not, to invest small amounts of money in small businesses that they know or just believe in. Small businesses provide jobs and sometimes small businesses become big businesses. For the first time in history average Americans will have an opportunity to invest in these businesses at the ground level. The crowdfunding bill accomplishes this goal in two ways. First it creates a legal exemption to allow small investors to invest small amounts of money in businesses without first requiring registration with the SEC. Second, it allows small businesses to advertise for these investors, through CFIRA member intermediaries, where before such advertisement was strictly prohibited.
In addition to providing investors with the opportunity to invest on the ground floor level of businesses, the bill provides small businesses with access to capital, and access to capital means the ability to hire employees.
SEC to Structure New Regulations
The crowdfunding bill gives the SEC nine months to structure the new regulations. The CFIRA will work closely with the SEC to accomplish this goal. It is anticipated that the new regulatory framework will, at the least provide for (i) a method to test an investors understanding of the investment and risk; (ii) basic background on the Issuers including criminal checks; (iii) adequate disclosure on the investment; (iv) confidentiality regarding information provided by investors, including financial information; (v) centralized reporting by both issuers and investors to ensure that the statutory dollar limits are not exceeded; and (vi) set forth regulations for the operations of the intermediaries, including professional conduct and rules of fair play.
From a more specific legal standpoint, the new regulations will:
- Create a new exemption under Regulation D allowing for the private placement of securities to unaccredited investors through crowdfunding intermediary websites;
- Allow for the public advertising and promotion of private securities offerings;
- Amend the Sarbanes-Oxley Act of 2002 to decrease the reporting and internal control requirements for smaller public companies;
- Expand the number of private shareholders from 500 to 2,000 before mandatory SEC reporting;
- Provide regulations to support private company market places (PCM’s)
The Author
Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions
Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.
Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.
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