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Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comAuthor: Dan Brecher|February 19, 2016
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.
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 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:
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.
Counsel
212-286-0747 dbrecher@sh-law.comThe 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.
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 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:
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.
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