Are we legal yet?

The President has just (like, a minute ago) signed the JOBS Act of 2012, which includes the authorization for crowdfunding.

So when can we actually start crowdfunding? NOT YET, and please folks, let’s be careful out there. Some cautionary lawyer-talk after the jump.

Two things need to happen before Crowdfunding Launch Date. First, the SEC has to adopt its crowdfunding rules. And second, it has to register funding portals. Because offers and sales of crowdfunded securities cannot be made except through registered portals. (And notice I said “offers” there. More on that below.)

The SEC has 270 days to adopt its rules, which would take us to the end of the year. Some folks have speculated that because the SEC has reservations about crowdfunding the Staff will drag their feet. I’m not currently seeing that happening; Staffers have mentioned in some pretty public forums that they will try to meet the deadline. The SEC does have a fair amount on its plate (look at all the missed Dodd-Frank deadlines) but people on the Hill seem to think they have an understanding with the Staff on both the nature and timing of the crowdfunding rules. Besides which, this Congress (the House especially) has shown a willingness to grab the drafting pencil from the SEC’s hands when it thinks things are moving too slow: look at what happened in other parts of the JOBS Act. Last year in hearings House Financial Services members asked the SEC whether it would increase the number of shareholders that triggered the obligation to register with the SEC. The SEC witnesses talked about having a task force and doing a study to determine what the right number was. In the JOBS Act, the shareholder threshold number got quadrupled, end of story.

So I think we’ll see proposed rules mid-summer, possibly a slightly shortened comment period (the norm is 90 days) and final rules adopted on time. When we see the proposed rules we’ll know how complex the portal registration process is going to be, but we have to bear in mind that the need to get portals registered may add some extra time onto the “are we legal yet?” timeline.

And in the meantime? OK, time for some super-technical stuff about what we securities law nerds call “the metaphysics.” Like I said up there, both OFFERS and sales of securities must either be registered under the Securities Act of 1933, or be made in accordance with an available exemption. The exemption that we are GOING to have will be Section 4(6) of the 1933 Act, which is available for securities offered through a registered portal. And there are no portals registered yet. So no exemption yet. And add to that the fact that the term “offer” is very broadly interpreted under securities law (changes made by the JOBS Act notwithstanding). Really broadly. For example, posting something like “here are some really cool companies who are not yet offering securities” might be an offer, even though it can’t be accepted. So if anyone’s planning to showcase any future entrepreneurs/offerings get some good securities law advice. This blog, by the way, is not securities law advice, or indeed any kind of advice. Get your own.


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