S.E.C.’s Delay on Crowdfunding May Just Save It

Wednesday, November 19, 2014

While the Securities and Exchange Commission dawdles, states are rushing to adopt their own crowdfunding rules. Ironically, it may just be the thing that rescues crowdfunding from a regulatory death grip.

In 2012, President Obama signed the Jumpstart Our Business Start-ups Act, otherwise known as the JOBS Act. The law was an odd creature. It purported to open up the capital markets and create jobs by loosening regulations on initial public offerings and allowing for crowdfunding. Yet there was little evidence to support that watering down of any of these regulations would create jobs. Instead, the bill mainly appeared to be catering to special interests and was intended to show that Congress was doing something, anything, to create jobs. Crowdfunding in particular was pushed by a number of special interests that — you guessed it — wanted to start crowdfunding sites.

Crowdfunding was also the most controversial part of the bill. The S.E.C., led by Mary Schapiro at the time, submitted a letter in opposition. The reason was basically fraud. Let’s face it, in a world where a potato salad party can raise more than $50,000 on Kickstarter, people may not be investigating their investments particularly well. The S.E.C. feared that crowdfunding would instead serve as an easy vehicle to defraud people.

Source: New York Times (link opens in a new window)

crowdfunding, public policy, regulations