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.
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.
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.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
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.
JOBS Act Equity Crowdfunding Rules Take Effect in May
Author: Dan Brecher
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.
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.
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.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
