2,527 crowdsourcing and crowdfunding sites
Editor's Note: The following post is the second installment in a series from David Drake, a founding board member of Crowdfund Intermediary Regulatory Advocates or CfIRA, designed to address some of the common issues, questions and concerns around the JOBS Act, which legalizes crowdfunding for equity in the United States beginning next year, after the SEC completes its rulemaking process. In this post Drake offers some recommendations on how to handle advertising and investment advice under the emerging crowdfunding framework. (More in Drake's first post in the series here)
The Act already addresses, and prohibits compensation for several categories of activities, including the purchase of potential investor information. It also forbids directly soliciting investors or directing them to specific investment vehicles. What is permitted is general advertising in the sense of branding a site or making the public aware of a site's purpose and function. The difficulty comes in with a grey area that might not be apparent at first glance.
Specifically, we recommend that investment providers generally be able to advertise that a certain company, cause, or named investment (is seeking crowdfunding) – without advertising specifics of the investment itself. This would fall under “notification” rather than an inducement to buy. This would allow directories, press releases and mention on other sites where potential investors may be interested in learning more. We feel this wouldn’t constitute “advertising” as much as “notification” and should have a backlink to the originating site as a stipulation.
Investment advice is a tricky subject. The problems arise when differentiating between unbiased information and actual investment advice or recommendations. This is further compounded by the ability to shape each user’s experience on the Internet and gain influence over their decision making.
When will information, such as about historical performance, be construed as advice or a recommendation? What about the selection process in the decision to back one offer and host that, over another, competing offer? SEC needs to allow exceptions and guidance for platforms (and we are asking them) to reject and remove issuers that may be offensive such as tobacco, alcohol related or sexually related issuers. How will that not be considered investment advice?
To a large extent we believe that free market forces will constrain this latter problem, with good investments attractive to intermediaries and poorer products less so. Transparency would be key and this implies an easy way for potential investors to access solid, relevant information.
One suggestion that would increase transparency, provide information and avoid unpermitted advice, would be a template requirement with stats visible across the board and presented in the same way. This would also be a clear target for regulation and an easily enforceable metric.
The JOBS Act needs interpretation of what the intentions of Congress were in drafting the new law. We are working with the SEC to translate and guide this crowdfunding process towards an economical automated implementation.
- In addition to his role on the board of CfIRA, Drake is also co-founder and executive committee board member of The Crowdfunding Professional Association (CfPA) and co-founder of The SoHo Loft series of events on capital creation and crowdfunding. He is a partner at LDJ Capital.