Crowdfunding And JOBS Act News Roundup – May 3, 2013

Mary Jo White, now chair of the SEC, submitted a written statement in her confirmation hearing that said “First, I would work with the staff and my fellow Commissioners to finish, in as timely and smart a way as possible, the rulemaking mandates contained in the Dodd-Frank Act and JOBS Act. The SEC needs to get the rules right, but it also needs to get them done. To complete these legislative mandates expeditiously must be an immediate imperative for the SEC.”  Here she is emphasizing in part she has multiple priorities on the front burner, and the remaining pieces of the Dodd-Frank Act are no piece of cake.

This week, according to MarketWatch, she told the SEC’s Advisory Committee on Small and Emerging Companies that “she wants to implement the JOBS Act – which seeks to ease access to capital for small businesses – by approving rules required by the law with a close eye on investor protection concerns. “If you don’t pay sufficient attention to them [investor protection concerns] the investing public won’t have sufficient confidence in an enterprise to invest in it and provide capital.””

Her later point in essence is haste makes waste.  She must deal with the polar extremes of the “let’s crowdfund now” lobby and the “worst piece of legislation” advocates on the other side.  If she wants to keep her job, she will have to deal with it all in the next few months.  As Broc Romanek of pointed out in “The Strange Case of SEC Chair White’s Confirmation,” she has only been appointed to a one year term.

In early April, ran a piece that indicated predictions of timing were conjecture.  It describes a meeting that David Blass, the chief counsel of the SEC, has with a group of entrepreneurs.  Mr. Blass reportedly said “”It just is not possible for me to say a date in which it will or will not be up and running . . . I don’t think anybody who gives you a prediction on timing really knows what they’re talking about, unless they’ve been through the process and knows what goes into making an SEC rule final.”

TheCrowdCafe had an interesting article captioned “Crowdfunding’s Disruptive DNA: The Why, How and Who.  It makes the point that crowdfunding will enter the bottom of the market, targeting customers whom often can’t be profitably served by incumbents.  Platforms will then then move up the value-chain in search for greater profit/margin, directly challenging incumbents.”  It’s seems like a viable analysis, assuming SEC baggage doesn’t offset the advantages to entrepreneurs, investors accept capital bases with large shareholder groups, and investors make appropriate risk-adjusted returns over time when even VCs are challenged to do so.

The article also boldly predicts the extinctions of finders, being persons who solicit capital for companies and sometimes act unlawfully as unregistered broker-dealers.  Maybe, but not every entrepreneur will be successfully crowdfunded and maybe the failed efforts will be further prey for finders.  But we do like their restatement of what the SEC’s view’s probably are: “Finders who are not registered broker-dealers are only permitted to do one thing: charge a flat fee for introducing a company to investors. For example: For $10k I’ll introduce you my network of 100 individuals; but it must start and stop there, I cannot participate in the transaction in any capacity. Transactional fee’s—e.g. 8% of the raise + warrants upon success— are explicitly illegal for unregistered Finders.”

Check frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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