Wednesday, August 22, 2012

Crowdfunding Regulatory Delay is Bad...Right?

Today the SEC once again delayed their deadline for the "removal of bans" on soliciting accredited investors under Reg D/506, and that has a lot of people steaming that such inaction is a harbinger of much greater delays for the highly anticipated Investment Crowdfunding Proposed Rules.

I have a tendency to agree.  And it is alarming.   (I have been a defender of the SEC, much to some people's chagrin.... see below) but that is wearing thin.   But even then, regardless of the SEC, the investment crowdfunding industry has other concerns, perhaps larger that the SEC's foot dragging:  FINRA and the NASAA.

I put before you an exchange that happened over on our Facebook page ( today.   I am copying it verbatim:

We must continue to take the lead in insisting on sane regulations that are not 'rushed' in order to meet a particular political agenda, or even to meet the financial agenda of anyone already in the industry. We must get these rules right, for the sake of the future of crowdfunding.
Portions of the JOBS Act will push crowdfunding from a "donation" model to a true investment model, and that will make it even more of a lure for swindlers, NASAA said.
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  • 2 people like this.

    • Mark Bruns 
      BULLSHIT. This Administration is anti-enterprise. These regulations should have been completed by now. The fact that the regulations have not been completed demonstrates that the contributions from very wealthy and influential Liberals o
      n Wall Street, in investment banking and venture capital have paid off. The SEC is helping the titans of Big Finance restrict the access to capital for private enterprise ... the delay in regulations speaks volumes about how far this Administration will go to avoid helping private enterprise and small business.

      These rules should be kept EXTREMELY simple ... during the first years of implementation the SEC should conduct "undercover" sting operations posing as clueless investors who want to gamble away everything they own.

      The burden of proof is on the crowdfunding platforms to SHOW that they have protected crowdfunding investors:

      1) Crowdfunding investors should be warned [and they should have to sign off on that warning three separate times] that this investing in a startup is HIGH RISK equity investment; it is LIKELY that that they will lose 100% of their capital. It is very similar to buying a lottery ticket [except that consumers are allowed to GAMBLE in State-owned lotteries because the State wants any and all tax revenues.]

      2) Crowdfunding platforms should be required to do due diligence on investors to know exactly what their income is per JOBS Act allowable investment limits; any investor without a tax return is limited $2000 invested and signed/notarized statement that they have not participated in another crowdfunding platform.
      8 hours ago · Edited · 

    • National Crowdfunding Association 
      I appreciate your passion, but let me suggest a step back. You want platforms investigating private individuals to determine their net worth? That would bring crowdfunding to a halt....unless of course you are suggesting 'know your custo
      mer' rules as are currently for BDs. Then that would be much more regulations. This Admin is actually quite favorable to crowdfunding. And the fact is that Wall Street is actually favorable to crowdfunding too, to the extent it cares at all. But the NASAA has a lot of power in the implementation, and as you know, that is comprised of state governments (nothing to do with the Administration). The SEC and FINRA could get it done tomorrow and still the states could effectively shut it down. The beauty of our Constitution. I know it is easier to blame the Administration, but a closer look shows a much greater detail of nuance and a need to respect state's rights. The NLCFA is looking for a crowdfunding system that will not get killed at the state level... but one that works. And that doesn't mean that the first thing out of the shoot is necessarily the best. The bill itself was horribly crafted (as any securities attorney will tell you), and another month of deliberations would possibly have made it much better. So, our thoughts/efforts are to be sure the government doesn't double-down on the error. We are playing a long-game: we want a system that works for the next 50 years, not to be reactionary and get one that only lives for a year or two. To that I am sure you and I would agree. David Marlett
      6 hours ago · 

    • Mark Bruns 
      We really NEED to have a select few crowdfunding platforms to be operating NOW ... with heavy scrutiny, with potentially changing regulations. We need to get to JOBS Act 1.0, so that we can get to JOBS Act 2.0, so that we can get to JOBS 
      Act 3.0 ... the birthrate (i.e. firms per capita) of new employer firms in this nation [and the rest of the world] is at an all-time low ... new growing employer firms is where economic growth comes from -- growth does NOT come from economic stimulus, it comes from new growing employer firms. Those firms provide BETTER jobs, BETTER products, more wealth, more knowledge because in order to grow they out-compete the existing firms. We have regulated the creation of startups out of existing -- we need the JOBS Act to eliminate this interference from the government; we need investors to understand that these ventures are risky but that some of them will succeed.

      We really NEED to have a select few crowdfunding platforms to be operating NOW ... so that they can evolve and improve ... so that the third revision is ready in 10 years ... so that the seventh or eighth revision is ready in 25 years ... we are NOT going to get it right on the first try.

      We do not have ten years or twenty five years to get this right ... we need to get aggressive on economic growth RIGHT NOW ... RIGHT NOW! That means starting small ... but most importantly, it means getting going, getting started!

      WE CANNOT AFFORD FOR IT TO BE PERFECT! We should allowing a small controlled launch with best regulations we have and adaptively learning from ACTUAL business results.

      Waiting for it to be perfect is EXACTLY the kind of incompetence we would expect from a college professor who has never launched a business.

      I would agree IF the SEC had developed regulations and then were deliberately slow in approving crowdfunding platforms for operation. But we do not have regulations [which should have been available 90 days after the bill was signed into law] and we have no clear committed date in the future when the regulations will be available. The risk is NOT that a few investors get burned on bad ideas; some SURELY will lose the capital that they commit. The risk that we choke the idea entirely will "analysis paralysis."
      5 hours ago · Edited · 

    • National Crowdfunding Association 
      I agree that we need not waste any time. (I have no clue what you are referring to regarding university professors, as they are not involved in this process.) But as in everything, what is called for is balance. You and I certainly agree th
      at investment crowdfunding is important to the economic growth of this country. We do have crowdfunding portals operational now, some Reg D investment models too: from Indiegogo to CircleUp. Many actually. (But I know what you mean.) And I am not suggesting we get it perfect on the first try. Not at all. But we need it to be smart, well-thought through, and respectful of state's rights. Besides all politics are fickle, and if we go out with a half-cocked system and someone loses a ton of money, the media reaction will make it politically more difficult to proceed. We will find ourselves being forced to take on more regulations, not less, in the next draft and beyond. Regardless of whether or not we think such a media-effect is appropriate, it is a fact that we must intelligently plan for ahead of time. In any case, I agree we need to keep the momentum going. If regulations are in place and FINRA has its rules out, and NASAA is letting things go, all by the second quarter of 2013, it will be one of the fastest regulatory launches in American history, and done with a much leaner SEC staff, all while trying to deal with Dodd/Frank. Something all who are involved should be proud of. Investors will certainly lose their money. Yep. No argument there. The risk is that we do a sloppy job on the rules and unaccredited investors are bilked and swindled, leading to unaccredited investors losing their right to participate in a meaningful way, as has been the case for the past 80 years. In all things, balance. Let's get it right, and yet not artificially tarry.


Now, lest you wonder, I am aware many fellow members of the NLCFA may differ with me.  I am very proud that we are a melting pot of ideas and points of view.  But, regardless, I think we are truly saying much the same thing:

Government:  Get off yer arses!  Stop draggin' yer damn feet!    (But oh yeah, get it right!)


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