2,527 crowdsourcing and crowdfunding sites
Last Thursday, Senator Jeff Merkley (D-OR) sent a letter to President Obama regarding crowdfunding regulation.
The letter discusses a number of issues the senator thinks the SEC should consider when formulating crowdfunding rules. Hoping to “add to the creative thinking going into [the rulemaking] process,” the senator touches upon funding portal regulation, investor protections, and advertising, among other topics.
Regarding funding portal regulation, Senator Merkley believes that a portal “should not be forced, directly or indirectly, to conduct a crowdfunding offering of an issuer it doesn’t have faith in or on terms it doesn’t believe should be made available to its customers.”
The JOBS Act is fairly light on regulations regarding crowdfunding intermediaries (portals and broker-dealers), which means the SEC needs to formulate many industry rules and standards in the coming months. Portals have been asking for clarification on rules regarding investment advice and advertising – for example, would excluding certain offerings be constituted as investment advice? Portal owners would likely support Senator Merkley’s position, as it would give them a large degree of flexibility when deciding which campaigns to list on their sites.
Senator Merkley also discusses off-platform advertising, calling for all individuals “paid or financially incentivized to promote” to “clearly disclose themselves each and every time they engage in a promotional activity.” This is meant to encourage full transparency on and off crowdfunding platforms, which would allow potential investors to consider their options without being swayed by promotional material.
Further discussing investor protections, Senator Merkley stresses the importance of caps on the amount an individual is allowed to invest and the public review period. The latter is meant to permit the “‘wisdom of the crowd’ to develop, rather than perhaps just the ‘excitement of the crowd.’”
Senator Merkley has been a leading proponent of securities-based crowdfunding for some time, having cosponsored the CROWDFUND Act along with Senators Michael Bennet (D-CO), Scott Brown (R-MA), and Mary Landrieu (D-LA) in March. That bill passed the Senate and was later included in the JOBS Act, signed into law by the president in April.
Senator Merkley’s letter touches upon many of the issues the SEC has to account for when creating crowdfunding regulations, and it is a worthwhile read. Check out the entire text at The Soho Loft.