Everyone is very excited about the new crowdfunding-for-securities law. Crowdfunding is a great idea–in concept. And now we have a new law which is about to make crowdfunding for securities a reality, at least in some sense. The trouble? The law is onerous. It is going to be difficult and expensive to comply with. The burdens of the new law are plenty, but the benefits of the new law are capped. In short, the crowdfunding law as currently written is, in my opinion, needs to be fixed. I don’t mean to be just negative here. Crowdfunding enthusiasts should take their enthusiasm back to Congress to try to get the law fixed. Here are a few of my complaints about the law as it currently stands and recommendations for improvements.
All posts tagged “Reg D” “Regulation D” “Rule 506″
The SEC, Accredited Crowdfunding, And The Art Of Hair Splitting
Summary of Remarks of Joe Wallin to Section 201 of the JOBS Act Given at a Presentation to the Angel Capital Association, Northwest Regional Meeting, held in Seattle, Washington, on May 2, 2012.
Last week I spoke on a panel with Dan Rosen,Tom Alberg, William Carleton and Gary Kocher at the Northwest Regional Meeting of the Angel Capital Association.
I put together these materials as a guide to my remarks. After I prepared them, the Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association (ABA) submitted its comments to the Securities and Exchange Commission (SEC) on Section 201 of the JOBS Act. I have added excerpts from the ABA Committee Letter where helpful to understanding the material.
There’s nothing more relaxing than a long drive right? The stereo’s bumping, you’ve got your bouncing baby startup strapped tightly in the car seat in the back, and you’re looking for ice cream, because your startup is about to startup some major crying without ice cream. If you speed, you’ll get to it quickly. If you jump the curb and cut through someone’s lawn you might get to it even faster. But all of that is illegal and dangerous. Do it even once and there’s a chance you could suffer a calamitous outcome, and above all, you’d be putting your precious baby startup in jeopardy. The same applies to private company financings. You’ve GOT to know and adhere to the “rules of the road” or all of the work you’ve done up to this point could be for not.
The rules for most private company financings are found under the Securities Exchange Commission’s (SEC) “Rule 506,” which dictates how individuals and startups must conduct themselves when seeking investment funds by selling securities (a share of stock, a convertible note, etc.). Running afoul of these rules can not only prevent you from raising the funds that you need, it could subject your personal assets to exposure (no corporate liability shield will be there to protect you), and in the worst case scenario, subject you to civil and criminal penalties. So, these rules can’t be taken lightly.