Divided SEC OKs crowdfunding rules for contributions to companies
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Implementing a 2012 law that allows companies to seek crowdfunding from individuals via the Internet, the U.S. Securities and Exchange Commission on Friday voted 3-1 to adopt new rules.
They limit contributions to no more than 5 percent of net worth or $2,000, whichever is higher, for individuals who either earn less than $100,000 annually or have assets of less than $100,000, according to the Associated Press and Reuters.
For individuals with more income and assets, the limit would be 10 percent of income or net worth, whichever is lower.
An individual could not contribute more than $100,000 to all crowdfunding ventures funded, over a 12-month period, and there is generally a one-year freeze on selling securities from crowdfunding, the AP reports.
The new rules help implement the Jumpstart Our Business Startups, or JOBS, Act.
One commissioner, Michael Piwowar, voted against the new rules, saying that they are still too stringent, Reuters reports.
“I fear that many traps for the unwary are hidden in the regulations, creating potential nightmares for small business owners that fail to place regulatory compliance at the top of their business plans,” he said. “Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital.”
Others, including law professor Mercer Bullard of the University of Mississippi, are concerned that more controls may be needed.
“You can embezzle someone’s money in the guise of making a securities offering,” he pointed out in a telephone interview, the AP reports. And, as with other forms of fraud, the Internet can offer a convenient platform for scamming investors.
A SEC news release provides more details about the new rules, which are expected to take effect in 2016.
Related coverage:
ABAJournal.com: “Strapped for cash to start a law firm? Crowdfunding may be permissible, ethics opinion says”
