Alert October 29, 2013

SEC and FINRA Rule Proposals Take Next Steps Towards Fulfilling JOBS Act Crowdfunding Mandate

The SEC issued a rule proposal designed to fulfill a mandate under the 2012 Jumpstart Our Business Startups (“JOBS”) Act to adopt rules that implement changes to the federal securities laws under the JOBS Act that permit capital raising through “crowdfunding.”  In broad terms, an issuer that conducts a crowdfunded offering may raise up to $1 million from a large number of accredited and unaccredited investors by selling securities through a broker or through a new type of SEC-registered intermediary known as a “funding portal.”  When sold through these intermediaries, crowdfunded securities will be exempt from the registration requirements of the Securities Act of 1933, and state securities laws.  Among other limitations, crowdfunding is not available to any issuer that (1) is required to file reports under Section 13 or Section 15(d) of the Securities Exchange Act of 1934, or (2) is an investment company as defined in Section 3 of the Investment Company Act of 1940 (the “1940 Act”), or is excluded from the definition of investment company by Section 3(b) or Section 3(c) of the 1940 Act.  (For a more detailed discussion of the JOBS Act provisions governing crowdfunding and funding portals, see the April 25, 2012 Goodwin Procter Alert.)  Comments on the SEC rule proposal are due 90 days after its publication in the Federal Register.

In a related development, FINRA published for comment proposed rules and forms for funding portals that become FINRA members in accordance with the crowdfunding provisions of the JOBS Act.  Comments on the FINRA proposal are due by February 3, 2014.

Crowdfunding will not be available to issuers, investors and intermediaries until after the implementing rules are final.