While serving in my American Bankruptcy Institute Resident Scholar gig in the spring, I had the occasion to conduct two interviews that were recorded as podcasts dealing with so-called crowdfunding. You can listen to the podcasts here and here. You can read what I've previously reported here and here.
In short, crowdfunding is a collective effort of numerous individuals who pool money, usually via the internet, to support some cause or activity they believe is socially valuable. To date, those who engage in crowdfunding cannot receive anything of value, such as an ownership interest or a promise of repayment, in return for their contribution. But that was supposed to change with the JOBS Act (Jumpstart Our Business Startups) passed by Congress and signed by President Obama in early 2012. The JOBS Act directed the Securities and Exchange Commission to issue regulations under which crowdfunding investors could get something besides satisfaction for their money.
One of the concerns about crowdfunding expressed by all participants, however, was the inordinate delay by the Securities and Exchange Commission in issuing rules to regulate the practice as it pertains to investments as opposed to donations. Reuters now reports here that delay has finally come to an end. Of course, the public still has 90 days to weigh in on the proposed rules and I suspect the public comments will lead to some changes but I expect that for-profit crowdfunding will be up and running sometime in February 2014.
What remains to be seen is whether the fears of those who believe that for-profit crowdfunding will be used by con artists and fraudsters of all sorts as a means of scamming the public. No doubt some of this will happen; after all, even now it can happen notwithstanding high-level SEC scrutiny of public offerings. Yet, for what it's worth, I believe that the limits on the amount of crowdfunding investments, the required accreditation of investors, and the limited disclosures that will be required will make crowdfunding a net gain for businesses in America.
In short, crowdfunding is a collective effort of numerous individuals who pool money, usually via the internet, to support some cause or activity they believe is socially valuable. To date, those who engage in crowdfunding cannot receive anything of value, such as an ownership interest or a promise of repayment, in return for their contribution. But that was supposed to change with the JOBS Act (Jumpstart Our Business Startups) passed by Congress and signed by President Obama in early 2012. The JOBS Act directed the Securities and Exchange Commission to issue regulations under which crowdfunding investors could get something besides satisfaction for their money.
One of the concerns about crowdfunding expressed by all participants, however, was the inordinate delay by the Securities and Exchange Commission in issuing rules to regulate the practice as it pertains to investments as opposed to donations. Reuters now reports here that delay has finally come to an end. Of course, the public still has 90 days to weigh in on the proposed rules and I suspect the public comments will lead to some changes but I expect that for-profit crowdfunding will be up and running sometime in February 2014.
What remains to be seen is whether the fears of those who believe that for-profit crowdfunding will be used by con artists and fraudsters of all sorts as a means of scamming the public. No doubt some of this will happen; after all, even now it can happen notwithstanding high-level SEC scrutiny of public offerings. Yet, for what it's worth, I believe that the limits on the amount of crowdfunding investments, the required accreditation of investors, and the limited disclosures that will be required will make crowdfunding a net gain for businesses in America.
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