The JOBS Act includes provisions to allow intermediaries known as “Crowdfunding Portals” to assist companies with raising capital using the internet. Crowdfunding Portals will serve as attractive capital raising centers for private companies seeking to go public in need of seed capital. Crowdfunding Portals can be either registered brokers or SEC approved Crowdfunding Portals. Crowdfunding Portals are not subject to the extensive registration requirements applicable to brokers, but they must register with FINRA and the applicable SROs.
Crowdfunding Portals are not subject to the extensive registration requirements applicable to brokers, but they must register with FINRA and applicable Self Regulatory Organizations.
Restrictions on Funding Portals include prohibitions from offering investment advice, soliciting transactions in securities offered or sold, compensating any employees or agents for soliciting transactions, holding, managing or collecting investor funds or securities, and engaging in activities prohibited by the SEC.
FINRA can enforce and examine rules specifically written for funding portals and Crowdfunding Intermediaries.
Crowdfunding Portals must collect the Portals are required to obtain background checks on each of a issuer’s officers and directors, or any holder of more than 20% of an issuer’s equity securities.
Under the JOBS Act, Crowdfunding Intermediaries must:
♦ register with the SEC and any applicable SRO;
♦ provide disclosures related to risks, as well as other investor education materials;
♦ ensure that offering proceeds are provided to the issuer and allow purchasers to cancel orders;
♦ make efforts to ensure that no investor exceeds individual Crowdfunding maximum investment amounts;
♦ protect investor privacy;
♦ not directly or indirectly compensate promoters, finders or lead generators who refer or direct investors to the offering; and
♦ not allow Crowdfunding Portal officers, directors or partners to have a financial interest in any issuer using the portal’s services.
State Law’s Impact on Crowdfunding Portals
Crowdfunding transactions are preempted from state regulation under the National Securities Markets Improvement Act (NSMIA). States can require a notice filing for the state of the issuer’s principal place of business or from where 50% or more of the aggregate amount of the offering is sold to its residents; however, in contrast to Regulation D offerings, states cannot collect filing fees on Crowdfunding transactions.
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Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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