Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

JOBS Act Equity Crowdfunding Rules Take Effect in May

Author: Dan Brecher

Date: February 19, 2016

Key Contacts

Back

JOBS Act Equity Crowdfunding Rules Take Effect in May

The Securities and Exchange Commission’s (SEC) equity crowdfunding rules are scheduled to take effect in May. In the meantime, the SEC and the Financial Industry Regulatory Authority (FINRA) are clearing the way for funding portals to start operating. In January, the SEC approved FINRA’s Funding Portal rules and related forms.

JOBS Act Equity Crowdfunding Rules Take Effect in May

Funding Portals Under the JOBS Act

As previously discussed, the JOBS Act authorized everyday citizens (non-accredited investors) to participate in equity crowdfunding. Once the SEC’s final rules take effect, start-ups and growing ventures will be permitted to solicit investments from “everyday” investors using the Internet.

Crowdfunding transactions must take place through an SEC-registered intermediary, which can be either a broker-dealer or a funding portal. Under the JOBS Act, funding portals relying on the crowdfunding exemption must register with the SEC and become a FINRA member. The statute further specifies that a funding portal may not: (1) offer investment advice or recommendations; (2) solicit purchases, sales, or offers to buy the securities offered or displayed on its website or portal; (3) compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal; (4) hold, manage, possess, or otherwise handle investor funds or securities; or (5) engage in such other activities as the SEC, by rule, determines appropriate.

FINRA’s Crowdfunding Rules

FINRA Funding Portal Rules are a “light” version of the general standards that apply to traditional brokers. Below is a brief summary of the seven crowdfunding portal rules approved by the SEC:

  • Funding Portal Rule 100: This rule sets forth basic standards and definitions for purposes of the Funding Portal Rules.
  • Funding Portal Rule 110: This rule establishes the membership application process (MAP) for funding portals, which includes submitting Form FP-NMA. Information that must be submitted includes whether the applicant or any associated person is subject to a statutory disqualification. The application fee is $2,700.
  • Funding Portal Rule 200: This abbreviated conduct rule prohibits a funding portal member from effecting any transaction in, or inducing the purchase or sale of, any security by means of, or by aiding or abetting, any manipulative, deceptive or other fraudulent device or contrivance. It also prohibits the use of false and misleading statements.
  • Funding Portal Rule 300: This streamlined supervision rule requires each funding portal member to establish and maintain a system to supervise the activities of each associated person of the funding portal member that is reasonably designed to achieve compliance with applicable securities laws and regulations, including the Funding Portal Rules.
  • Funding Portal Rule 800: This rule provides that funding portal members are subject to FINRA’s rules regarding investigations and sanctions. It also states that FINRA may provide access to the public, via an appropriate link on the FINRA website, to a funding portal member’s current SEC Form Funding Portal.
  • Funding Portal Rule 900: This rule states that funding portal members are subject to FINRA’s Code of Procedure, unless the context requires otherwise.
  • Funding Portal Rule 1200: This rule confirms that funding portals are subject to FINRA’s code of arbitration and mediation procedures, as well as addresses the use of pre-dispute arbitration agreements for investor accounts.

The full funding portal rules are available on the FINRA website along with all of the applicable forms. Given the novelty and complexity of the registration process, prospective crowdfunding portals should consult with an experienced business attorney.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Dissolving Your Business: Essential Legal Steps to Protect Your Interests post image

Dissolving Your Business: Essential Legal Steps to Protect Your Interests

If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]

Author: Christopher D. Warren

Link to post with title - "Dissolving Your Business: Essential Legal Steps to Protect Your Interests"
The Role of Corporate Restructuring in Mergers & Acquisitions post image

The Role of Corporate Restructuring in Mergers & Acquisitions

Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]

Author: Dan Brecher

Link to post with title - "The Role of Corporate Restructuring in Mergers & Acquisitions"
Crypto Enforcement: A Former Prosecutor’s Warning to Criminals and the Public post image

Crypto Enforcement: A Former Prosecutor’s Warning to Criminals and the Public

Cryptocurrency intimidates most people. The reason is straightforward. People fear what they do not understand. When confusion sets in, the common reaction is either to ignore the subject entirely or to mistrust it. For years, that is exactly how most of the public and even many in law enforcement treated cryptocurrency. However, such apprehension changed […]

Author: Bryce S. Robins

Link to post with title - "Crypto Enforcement: A Former Prosecutor’s Warning to Criminals and the Public"
Understanding Chattel Paper: A Key Component in Secured Transactions post image

Understanding Chattel Paper: A Key Component in Secured Transactions

Using chattel paper to obtain a security interest in personal property is a powerful tool. It can ensure lenders have a legal claim on collateral ranging from inventory to intellectual property. To reduce risk and protect your legal rights, businesses and lenders should understand the legal framework. This framework governs the creation, sale, and enforcement […]

Author: Dan Brecher

Link to post with title - "Understanding Chattel Paper: A Key Component in Secured Transactions"
Crypto Compliance: A Comprehensive Guide post image

Crypto Compliance: A Comprehensive Guide

For years, digital assets operated in a legal gray area, a frontier where innovation outpaced the reach of regulators and law enforcement. In this early “Wild West” phase of finance, crypto startups thrived under minimal oversight. That era, however, is coming to an end. The importance of crypto compliance has become paramount as cryptocurrency has […]

Author: Bryce S. Robins

Link to post with title - "Crypto Compliance: A Comprehensive Guide"
Supreme Court and Title VII: Implications for Reverse Discrimination post image

Supreme Court and Title VII: Implications for Reverse Discrimination

Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]

Author: Matthew F. Mimnaugh

Link to post with title - "Supreme Court and Title VII: Implications for Reverse Discrimination"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!