Final Senate Version of Crowdfunding 2

As we know, the Senate changed the version of the Jumpstart our Business Startups (JOBS) Act in only one way, they added an amendment, drafted by Sen. Merkley (but also supported by Sens. Bennet and Brown), which added more investor protections to the “crowdfunding” section of the bill. The House is expected to vote to approve the revised bill this week. My prior posts do not have information about the Senate amendment, so I will provide it now.

The new section of the bill, to be called the Crowdfund Act, creates a new Section 4(6) of the Securities Act which exempts crowdfunded offerings from SEC registration.  It has the following highlights:

  • An issuer can only raise up to $1,000,000 per 12-month period
  • Each investor can only invest in all crowdfunded investments in a year for all companies the greater of (a) $2,000 or 5% of annual income or net worth if either is less than $100,000 or (b) 10% of annual income or net worth with a cap of $100,000 if income or net worth are more than $100,000
  • The deal MUST be done through a broker or “funding portal” registered with the SEC and FINRA
  • Lots of information, including risks, must go to investors at least 21 days before closing
  • Information to be given includes management certified financial statements for offerings under $100,000, “reviewed” financial statements for offerings between $100k and $500k, and audited financials for offerings over $500,000
  • Issuers must file updated results of operations and financials annually with the SEC
  • Investors cannot transfer stock for one year with limited exceptions
  • The company must be organized in the US and non-SEC reporting
  • The SEC has 270 days to make rules to implement
  • Bad actors will be disqualified
  • Offerings are exempt from state regulation (other than enforcement) but certain filings and fees may be required

 Of course as always just email or call me if you have any questions!!!

2 thoughts on “Final Senate Version of Crowdfunding

  1. Reply Bryan G Mar 27, 2012 12:51 pm

    I assume there won’t be any restriction on the issuer filing a resale registration statement shortly after closing so that transfer can be done sooner then the proposed 1 year?

    • Reply David Feldman Mar 29, 2012 5:34 pm

      Bryan, the bill specifically provides that sale by a registered offering gets you out of waiting a year.

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