Editor's Note: The following is a guest post reprinted with permission from Seattle-based attorney and blogger William Carleton. It was originally published on Carleton's blog, Counselor @ Law. Below, Carleton looks at the third crowdfunding bill recently introduced in Congress and the second in the U.S. Senate. A competing bill has already been stalled in the Senate for weeks--a companion bill to a House version that passed earlier this fall. In other words, the path to a legal framework for crowdfunding in the U.S. has hit a bottleneck in the Senate. In the below, Carleton references a "NASAA" proposal as well, which comes from the North American Securities Administrators Association, a coalition of state regulators.

There's now a third crowdfunding bill in Congress, and it's poorly conceived.

Using the acronym "CROWDFUND," for "the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act," it was introduced last week by Senator Jeff Merkley.

I'll just call it S. 1970. The bill has no core. Its drafters don't really believe in democratizing seed financing.

(Chart is an update of my prior comparative table, adding a new column for S. 1970. Let me know if you see errors and I'll try to correct them in a subsequent iteration. Or if you'd like to build on it, please do, under a creative commons license that permits others to freely build on your version.)

Superficially, S. 1970 tracks the bill that passed the House (H.R. 2930) and Senator Scott Brown's bill (S. 1791) on key points and thresholds. Like the other bills, S. 1970 has a $1,000,000 limit on what issuers can raise in any 12-month period. Disclosure of investment risks is required, and Dodd-Frank "bad actor" disqualification rules are contemplated.

But compare S. 1970 with the House and other Senate bill on other points, and you chalk up telling differences:

• The individual investment limit is capped at the greater of $500, or 1% or 2% of an investor's annual income (depending on the investor's income).

• S. 1970 also introduces the complexity of capping what an individual may invest in crowdfunding deals on an aggregate, annual basis, the baseline cap set at $2,000 - suggesting that the average person, fully maxing out each deal at $500, can invest in no more than four (4) exempt crowdfunded deals each year.

• The paternalism of the annual, aggregate cap on individuals gets worse - if your income is higher, your cap is higher; up to four percent of your annual income if you make more than $50,000; eight percent of your income if you make more than $100,000.

• An intermediary, called a "funding portal" in this bill, is required to screen issuers, take affirmative steps to educate investors, keep track of investors' income levels, and follow SEC rules created especially for funding portals . . .  but isn't permitted to recommend deals or solicit sales for the deals it vets.

• Proceeds can be released only when the offering is 100% subscribed, not at the 60% threshold set in the other bills (meaning Merkley's bill will encourage entrepreneurs to set lower funding targets).

• Issuers must file quarterly reports and financial statements with the SEC (which is supposed to do, what, tell all the crowdfunders the financials are fine?).

• A new securities fraud violation is created, seemingly giving every $500 investor a direct, private right of action against the personal assets of any director or officer of a crowdfunding issuer.

Let me be clear on my own feeling about paternalism in securities regulation: I'm all for it. I love Rule 506 under Reg D and like the fact that the exemption is pretty much useless if you allow any non-accredited investor to participate. I also think the accredited investor thresholds are pretty much right where they should be (though it's also fine if they creep lower over time, i.e., they needn't be adjusted for inflation).

But you can't take a Reg D or paternalistic mindset in crafting a crowdfunding exemption. If you're going to scope one, you have to have the courage of a conviction that the experiment is worth trying, that there are entrepreneurs out there who will put crowdfunded funds to good use, and to the economic benefit of all of us.

Being skeptical, or suspicious, or outright hostile to a federal crowdfunding exemption are all reasonable positions in my view. But this bill is not reasonable, because it takes paternalism to new (and wholly impractical) magnifications of micro-management.

If the sponsors of S. 1970 have such fundamental misgivings about crowdfunded securities offerings, they should be opposing the bill that passed the House and the bill Senator Brown introduced, and instead line up behind the NASAA proposal. State regulators would be far more suited to the regulatory burdens this bill misguidedly places with the SEC.

-- William Carleton is with the firm of McNaul, Ebel, Nawrot & Helgren. He also has experience as a startup lawyer and angel investor. Follow him on Twitter @wac6.

 For more information on the effort to introduce Capitol Hill to crowdfunding, check out this recent editorial from the guys who brought it to Washington's attention.