30 March 2015

A Long Time Coming: SEC and Crowdfunding

Two years ago I posted several times about the 2012 federal JOBS (Jumpstart Our Business Startups) Act. You can read those posts here and here. I was particularly interested in what the Act would do to reduce oversight by the Securities and Exchange Commission with respect to "crowdfunding," a means by which businesses and non-profit organizations can use the internet to appeal to many people for small investments. For more about crowdfunding, listen to my American Bankruptcy Institute podcast interviews with folks directly involved in it here and here.

Six months later, in October of 2013, I was pleased to post that at long last the SEC had promulgated rules by which to implement the various changes that Congress had legislated over a year earlier. Of course, those were preliminary rules subject to an opportunity for interested parties to object and suggest changes.

Finally, the objection period came to an end, the SEC made some changes, and at long last the rules have become final. Read all about it in the Washington Post here.

A couple of thoughts. First, credit should be given to the SEC for taking its time in crafting rules that, on the one hand, will allow business and others quickly to raise money for investment purposes and, on the other hand, to protect such potential investors from the fraudsters who inevitably will use the same rules for their purposes. As I argued here and here, compromise is not a dirty word and in the political (and economic) worlds there are regularly balances to be struck. Time will tell how well the SEC struck that balance but neither delay nor the certainty that fraud will occur means the final rules aren't the best that could have been made.

Second, the need for capital in our economic system is clear and increasing the ability of firms to raise capital and, more importantly, increasing the number of active investors, is important to the long-term health of that system. The rise of the phenomenon of "social enterprise," championed by former colleague Haskell Murray, is another leg in the chair of returning capitalism to its original ends.

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