The Jumpstart Our Business Startups (“JOBS”) Act was signed into law by President Obama on April 5, 2012. The JOBS Act requires the Securities and Exchange Commission (the “SEC”) to issue final regulations regarding the portions of the JOBS Act relating to crowdfunding within 270 days of the law’s enactment on December 31, 2012.
As of its deadline, the SEC had not yet issued the JOBS Act’s crowdfunding final regulations.
Until that happens the future of crowdfunding in securities offerings remains in limbo.
The Purpose of Crowdfunding under the JOBS Act
The purpose of the act is to make it easier for small businesses, characterized as “emerging growth companies,” to raise money more cheaply and easily.
That will be accomplished by reducing such companies’ disclosure requirements, by allowing advertising of certain kinds of public placements, and by permitting more non-accredited investors to participate in these offerings. The last two are critical elements of what is called “crowdfunding.”
As useful as all that will be for small issuers, until the SEC promulgates its final regulations, crowdfunding in securities offerings remains illegal.
Crowdfunding under the JOBS Act
Even though the crowdfunding provisions of the Act have not yet been approved, many companies are being bombarded with solicitations by fraudsters offering to help them raise capital using crowdfunding.
Companies presently seeking to offer and sell securities without registering with the SEC must comply with the prohibition against general solicitation or advertising in Rule 506 offerings, and must also comply with Rule 506’s disclosure requirements for non-accredited investors regardless of the amount of money raised in the company’s offering.
Illegality of Crowdfunding until SEC Establishes Regulations
As appealing as the crowdfunding provisions of the JOBS Act are for small busineses wishing to go public, and for small issuers who are already public, it’s important for them to be aware that it is not yet available to them as a fundarising tool. They should resist the hype thrown their way by hucksters out to make a quick buck, and wait for the SEC to complete its work on the relevant regulations.
For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton Florida, (561) 416-8956, by email at firstname.lastname@example.org. This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates or visit http://www.securitieslawyer101.com.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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