Summary And What's Next: SEC On Crowdfunding

Crowdfunding Platforms

Title III of the JOBS Act requires that crowdfunding transactions take place through an SEC-registered intermediary, either a broker-dealer or a funding portal. Under the proposed rules, the offerings would be conducted exclusively online through a platform operated by a registered broker or a funding portal, which is a new type of SEC registrant.

• The proposed rules would require these intermediaries to:
• Provide investors with educational materials.
• Take measures to reduce the risk of fraud.
• Make available information about the issuer and the offering.
• Provide communication channels to permit discussions about offerings on the platform.
• Facilitate the offer and sale of crowdfunded securities.
• The proposed rules would prohibit funding portals from:
• Offering investment advice or making recommendations.
• Soliciting purchases, sales or offers to buy securities offered or displayed on its website.
• Imposing certain restrictions on compensating people for solicitations.
• Holding, possessing, or handling investor funds or securities.
• The proposed rules would provide a safe harbor under which funding portals can engage in certain activities consistent with these restrictions.

What’s Next?

The SEC will take public comments on the proposed rules for 90 days, after which it will review the comments and determine whether to adopt the proposed rules. Depending upon the tone and substance of the comments, the SEC may move quickly to adopt the rules as proposed, adopt the rules with certain modifications based on the comments, or re-propose the rule for additional public comment. Anxious market participants should not expect to start offering their crowdfunding securities.

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