Crowdfunding l The SEC’s Invisible Rule

Crowdfunding - Securities Lawyer 101

Securities Lawyer 101 Blog

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 May 5, 2012, the SEC still has not issued the required JOBS Act’s final regulations concerning crowdfunding.  More than a year after the passage of the JOBS Act, the future of crowdfunding remains in limbo.  The uncertainty of crowdfunding under the JOBS Act continues to be a tremendous disappointment for issuers seeking to benefit from its securities offering provisions.

Crowdfunding’s Purpose | The JOBS Act
The purpose of the JOBS Act is to make it easier for small businesses, characterized as “emerging growth companies,” to raise money more easily and inexpensively.

What We Know About Crowdfunding So Far

♦ Domestic Issuers who do not file reports with the SEC pursuant to Sections 13 or 15(d) of the Securities and Exchange Act of 1934 may raise up to $1 million in any 12-month period.

♦ Securities sold using crowdfunding transactions will be restricted securities and subject to a one-year holding period unless registered with the SEC.

♦ Crowdfunding allows an investor with a net income of $100,000 or more to invest the greater of 10% of his annual income over a 12-month period or net worth.  Investors with a net income of less than $100,000 may invest the greater of $2,000 or 5% of annual income or net worth.

♦ Only registered broker-dealers or registered “funding portals may offer and sell securities offered in crowdfunding offerings.  Broker-dealers and funding portals may not solicit investments, offer investment advice or pay transaction based compensation to employees.

♦ Crowdfunding requires the issuer to file a disclosure document to be filed with the SEC at least 21 days prior to its first crowdfunding sale.  For offerings over $500,000 audited financial statements must be provided.

♦ Crowdfunding does not allow advertising except by the registered broker or funding portal directly to investors.

♦ Companies using crowdfunding to raise capital must file annual reports and with the SEC.

♦ Background checks on management and large stockholders is required as well as exetensive due diligence.

Illegality of Crowdfunding Until SEC Establishes Regulations

Even though the crowdfunding provisions of the JOBS Act have not yet been approved, many companies are being bombarded with solicitations by boiler room operators offering to help them raise capital using crowdfunding.  These groups claim that crowdfunding can be used to sell securities in offerings because of the JOBS Act.

As appealing as the crowdfunding provisions of the JOBS Act are for small businesses 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 fundraising 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 securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  This securities law blog post 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 about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10, OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or [email protected].  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855