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Three years after Obama signed the JOBS Act and the regulation so many people consider to be “the game changer” – the one that will “democratize capitalism” by letting the average Joe invest in private companies – has yet to see the light of day.
Title III of the JOBS Act – colloquially known as crowdfunding [3] – came to the floor with 585 pages of proposed rules in October 2013 leaving most insiders demanding a score of revisions. So far, nothing’s happened and no one outside the Commission knows what the regulation will look like.
Supposedly, that’s about to change in the next few weeks.
On September 23, Mary Jo White confirmed [4] that the final rules on Title III are right around the corner. According to White:
"On the subject of the JOBS Act crowdfunding rulemaking, the staff has been working very hard on final rule recommendations for the commission, and I anticipate that you will see something on that front from us in the very near term."
Now, it’s hard to say exactly what “working very hard” and “very near term” really mean, but from what we’ve seen with Titles II and IV, announcements like this – ambiguous as they may be – tend to precede action (smoke, fire, you get the drift). Still, the real question remains: Whenever this set of rules actually comes into play, how hard will it be to actually use them and how much will they really help small companies?
Under the proposed rules for Title III, any company looking to raise more than $500,000 (including prior crowdfunded offerings in the prior 12 months), would have to provide two years of audited financial statements when it files its initial offering materials with a crowdfunding platform and the SEC. Given that audited financials can cost thousands and companies can only raise $1 million per year under these rules, it’s almost not worth it for many companies to bother.
The proposed may also require platforms to assume due diligence responsibilities for all deals, ultimately exposing them to statutory liability as sellers of securities. That makes sense to an extent, but at the same time the SEC expanded on a JOBS Act requirement that prohibits officers and directors of platforms from having any economic interest in crowdfunded companies to platforms as a whole.
In the end, it sounds like rumors abound for the passing of Title III but we wonder what the playing field will look like and where the bureaucratic mine fields will lay.
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