Crowdfunding emerged in 2005, allowing enterpreneurs to solicit capital from anyone with internet access. The model has since exploded, but not without some obstacles. Because some types of crowdfunding promise or offer a financial return on the investment, the purchase and sale of securities are involved and the activity falls under the enforcement jurisdiction of the SEC. In June 2011, the SEC took enforcement action to stop a $300MM crowdfunding effort involving the Pabst Brewing Company, which was eventually resolved with a cease-and-desist order. The JOBS Act signed by President Obama in April 2012 permits start-ups to raise capital through crowdfunding, utilizing an exemption from the registration requirements of the Securities Act of 1933. Crowdfunding is the subject of this article, which discusses the three general models of crowdfunding – the donation model, the reward model, and the investment model. The authors focus carefully on the investment model, outlining its principal benefits and potential drawbacks, including on the drawback side, the potential for investor lawsuits resulting from failed business ventures. The JOBS Act’s Title III, the Crowdfund Act, and its particular disclosure requirements are discussed in a handy list format. The Crowdfund Act requires the SEC to adopt implementing regulations by December 31, 2012.
Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.
We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.
Please choose one of the above to proceed!
LOADING PDF: If there are any problems, click here to download the file.
Topics: Crowdfunding, JOBS Act, SEC
Securities Law Updates
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.
© Tom Sporkin, BuckleySandler LLP | Attorney Advertising