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Editor's Note: The following post comes to us from David Drake, a founding board member of Crowdfund Intermediary Regulatory Advocates or CfIRA. Also see Drake's previous posts, which deal with education, fraud protection, transparency and creating a whistleblower program, advertising and investment advice, and consumer protection, and our discussion of the JOBS Act implementation timeline in The Crowded Room.
Crowdfunding for equity won't be ready till Q4 2013 at the earliest and my guess is that implementation will be closer to Q1 2014. Let me walk you through my thinking around this.
SEC Chair Mary Schapiro will resign by year end. No proposal will be submitted until a new Chair is chosen. Granted that Mary was quickly chosen during the financial crisis and there was no lapse in time between Chairs, but Obama will pick a Democratic Chair to end the polarization that has not been endured at SEC Commissioner level for over 30 years. Yes, there have been factions and there certainly has been friction.
Regardless, Obama also has a number of other matters in play during this period as he has to pick a Treasury Secretary, deal with the Fiscal Cliff and get inaugurated at the end of January.
So, here is my view of what’s got to happen before we see crowdfunding for equity implemented in the US. I’ll list the steps I regard as key interspersed with some thoughts on key implementation points.
Step 1. The Announcement—at the earliest, a new SEC head will be announced in the last week of January, though the announcement could come as late as March.
Step 2. Ratification—the Senate (which is controlled by Democrats), not the House (controlled by Republicans), will approve Obama's choice.
SEC Commissioner Elisse Walter was the interim Chair last time and is close to Mary Schapiro so she would be the interim Chair until a new Chair is confirmed.
Meanwhile the SEC staff has been surprisingly helpful and open in interactions with CFIRA (Crowd Fund Intermediary Regulatory Advocate), founded from the Crowd Funding Intermediary Regulatory Association, since we first sat down with them Friday April 20, 2012. They certainly have drafts they have been polishing the last six months and both Trading & Markets and the Division on Finance have been very accommodating as we have worked through all scenarios with them during more than several dozen meetings over the last 7 months.
Step 3. Say the new SEC Chair comes in Feb. 15 - he/she would need 30-45 days to review operations,
Step 4. and another 30 days to set up the proposal to be voted on by the SEC Commissioners, then we would be around May 1st.
Step 5. 90 days of public commenting would take us to August 1.
Step 6. It would take more days for the staff at the SEC to summarize all the proposals and circulate memos on suggestions to the Commissioners.
Step 7. After Labor Day the SEC Commissioners would set up a time to vote on the proposal as a final ruling. This puts us out to Oct. 1st.
Of course, these assumptions are based on past inner workings and results by the SEC and if we review the last 7 months the above will not meet any of our assumptions and deadlines. If Elisse Walter becomes the Chair, and not the interim leadership role, then we can see these dates being made as she is certainly ahead of the curve.
So, October 1st—give or take 15 days—is the best scenario for a ruling on crowd funding for equity.
Steps 8, 9 & 10. And then we are not finished. FINRA has been as quick as 30 days to implement SEC rulings but some have taken years.....
FINRA, the private police extension of SEC, will have to undergo its own process of proposals, commenting and rule making. That takes us into 2014 before we will see strong and swift progress.
The clock will start ticking when a new Chair of SEC starts work. Now we can only hope to keep all the balls rolling and all the conversations continuing with SEC and FINRA so there are fewer unknowns. Politics and new SEC leadership is pending and must take it's due course—CFIRA, SEC and FINRA are doing hard work and we in the industry have appreciated it. This current bottleneck is just a time of patience as our work continues.
What do you think? I challenge you to comment.
- In addition to his role on the board of CfIRA, Drake is also co-founder of The SoHo Loft series of events on capital creation and crowdfunding. He is a partner at LDJ Capital.