With Washington politicians pushing The Jumpstart Our Business Startups Act (JOBS) of 2012, organized crowdfunding is about to become a new way of investing in the near future.
Title III of the JOBS Act provide a registration exemption for limited-size offerings ($1 million per year) sold in small amounts to a large number of investors possible through the Internet. Basically, Crowdfunding will allow the average American to invest small sums of money into small businesses in their communities either as a loan or in return for a small equity stake in the company. Currently, SEC regulations — written over 80 years ago — do not allow this type of investing.
Finalization of this exemption is still waiting for implementation regulations to be published by the Securities and Exchange Commission. The original deadline for such publication was December 31, 2012 but the SEC is promising that there work will be done “soon”.
Meanwhile, states have stepped in to fill the gap. Beginning with Georgia and Kansas, and now expanding to North Carolina, Wisconsin with others are not too far behind, states have adopted their own version “intrastate” securities-based crowdfunding.
Elsewhere in the Jobs Act, title II greatly expands the ability to issue private placement securities offerings including the lifting of the decades old prohibition of general solicitation and advertising.
These provisions can do much to enable small companies to raise funds and permit the “small investor” to get into some of the action previously available only to the large “well connected” investors. But it doesn’t come without major concerns:
- What does all this mean for the D&O industry?
- What restraints will the SEC put on the will of Congress?
- How useful will Intra-state crowdfunding be in the meantime?
- What Insurance protection options exist today or should be created?
