The SEC considered one proposed rule and adopted two final rules today. The most important of the new rules makes it legal for the first time since the days of the Great Depression for private companies to advertise that they are seeking investment capital. Venture capitalists and hedge funds will be permitted to do the same.
Entrepreneurs and small business owners are especially interested in aspects of the Act that will permit small businesses to solicit crowdfunded investments from “unaccredited” investors—or people who are not high net-worth—but the SEC has yet to rule on that aspect of the law.
The rules adopted today must be published in the Federal Register before they can go into effect.
One of the final rules “would implement the JOBS Act provision eliminating the prohibition against general solicitation and general advertising in private placements made under Rule 506 of Regulation D,” according to the National Small Business Association, a supporter of the Act. The provision allows small businesses to seek investment from accredited investors (individuals with a net worth of $1 million, not including their primary residence, or annual income over $200,000) via newspapers or the internet—including crowdfunding platforms and social media networks. The rule requires businesses to take “reasonable steps” to ensure that investors are accredited, and offers a list of some reasonable steps.
The Washington Post reports that “investor advocates are braced for the worst.” The one SEC Commissioner who did not vote in favor of that rule was Luis Aguilar, “a Democrat who has long argued that lifting the advertising ban would expose investors to fraud, and he maintained that position on Wednesday,” the Post reports.
The other final rule adopted today, according to the NSBA, limits the ability of ‘bad actors’ to engage in Regulation D private placements. It bars those who have committed securities fraud and some others from participating in offerings.
While some have expressed concern that the JOBS Act will open investors up to scams and predators, NSBA and two SEC commissioners have argued that a proposed rule adopted today places too great a burden on small businesses. If made final, the rule would impose “a series of information reporting requirements and other requirements regarding the content of offering documents on Regulation D private placements,” NSBA reports.
Daily Crowdsource founder David Bratvold says he was surprised to hear that the SEC had adopted any rules at all. “I thought the legislation was dead,” he says. He called today’s moves “a good step forward,” but says there is still much standing in the way of making crowdsourced investment funding effective.
See other Yahoo! Small Business Advisor coverage of crowdfunding and the JOBS Act here: