Editor's Note: Earlier in a two-part series on Crowdsourcing.org, Paul Spinrad recalled his experieces as the first mover on crowdfunding for equity in the U.S. and took an analytical look at the movement that has risen up around crowdfunding and the JOBS Act. Paul also sent along some footnotes of a sort that demonstrate just how influential the initial petition to the SEC that he helped create have become over the past two years.
On June 24, 2010, the Sustainable Economies Law Center (SELC) in Oakland, CA submitted to the SEC the first public petition for a crowdfunding exemption, which the SEC posted as File No. 4-605, "Request for rulemaking to exempt securities offerings up to $100,000 with $100 maximum per investor from registration." The legal work for researching and writing the petition was itself crowdfunded on IndieGoGo as "The Crowdfunding Campaign to Change Crowdfunding Law," and the donors are all listed in the petition's first footnote.
The SELC petition subsequently inspired more public comments than any previous SEC rulemaking petition, and catalyzed a movement that resulted in the signing of the CROWDFUND Act, as Title III of the JOBS Act of 2012. At a recent Milken Institute roundtable on crowdfunding, one participant described this legislation as one of the most momentous and rare exemptions in U.S. securities laws since the Securities Act of 1933. Here are some citations that reference the SELC's influential petition.
- Letter to The Honorable Darrell E. Issa, Chairman, Committee on Oversight and Government Reform by Mary L. Schapiro, U.S. Securities and Exchange Commission (April 6, 2011)
p. 22 (footnote): " The Commission received a rulemaking petition on July 1, 2010 from the Sustainable Economies Law Center asking for a crowdfunding exemption from registration under the Securities Act, with a $100,000 offering limit and
a $100 maximum investment limit. […] The petition has received almost 150 comment letters, all in favor of the creation of such an exemption, with some offering different thresholds for offering size and/or individual investment limits."
- "Proceed at Your Peril: Crowdfunding and the Securities Act of 1933" by Joan MacLeod Heminway and Shelden Ryan Hoffman, Tennessee Law Review, Vol. 78, p. 879 (2011)
Page 945: "The SELC petition caught the attention of both crowdfunding advocates and the SEC, and it has served a valuable role as a catalyst of efforts for change. [But] it represents a unilateral, incomplete response to the issues crowdfunding raises under the Securities Act."
- Startup Exemption Petition, Long version, posted circa March 1, 2011
"According to the Sustainable Economies of Law Center, 'the current registration requirements under Section 5 of the Securities Act of 1933, as well as existing exemptions from registration, impose considerable hurdles on small businesses.' [….] This independent article submitted to the SEC provides a concise understanding of the challenges facing startups wishing to raise capital."
- Back to Work by Bill Clinton (Nov 2011)
Page 177: "In 2010, the Sustainable Economies Law Center petitioned the SEC to allow investors to raise up to one hundred thousand dollars in contributions of no more than one hundred dollars per person. Even that would make a real difference. This is a reform that should get bipartisan support."
- "Crowdfunding and the Federal Securities Laws" by C. Steven Bradford, Columbia Business Law Review, Vol. 2012, No. 1 (2012)
Page 81: "The first exemption proposal came in 2010. The Sustainable Economies Law Center petitioned the SEC to exempt offerings of up to $100,000, provided that no single investor contributed more than $100. […]The petition itself is an illustration of the power of crowdfunding: it was funded by a campaign on the crowdfunding web site IndieGoGo."
- "The New Federal Crowdfunding Exemption: Promise Unfulfilled" by C. Steven Bradford, Securities Regulation Law Journal, Vol. 40, No. 3 (forthcoming, Fall 2012)
Page 5: "The crowdfunding exemption has a surprisingly short history. The first proposal to exempt crowdfunding from federal securities law came in 2010, when the Sustainable Economies Law Center petitioned the SEC to exempt offerings of $100,000 or less, provided that no single investor contributed more than $100. Other exemption proposals followed."
Read parts one and two of Spinrad's series to get the full picture of how the JOBS Act got going.