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SEC issues proposed rule on crowdfunding

  • SEC (US Securities and Exchange Commission) Image

Oct 23, 2013

At today's open meeting, SEC Chair Mary Jo White announced that the SEC has issued a proposed rule on crowdfunding, a method of raising capital through small investment amounts from a large number of investors, such as over the Internet or through social media. The rule would exempt qualifyied crowdfunding transactions from registration and prospectus delivery requirements.

The proposed rule (link to SEC's Web site) includes a number of parameters aimed at facilitating capital formation while protecting investors, such as:

  • Crowdfunding transactions must be done through broker-dealers registered with the SEC or a new intermediary called a "funding portal."
  • The maximum amount raised or invested through crowdfunding is limited to $1 million in any 12-month period.
  • Issuers must file financial statements with the SEC and provide them to investors and intermediaries. The financial statements must cover the shorter of the: (1) issuer’s two most recent fiscal years or (2) length of time the issuer has been in existence.
  • Specified disclosures must be provided to investors and potential investors, including information on the business, owners, use of proceeds raised, and certain related-party information.
  • The inclusion of certain “bad actor” restrictions that bar certain issuers from taking advantage of the crowdfunding exemption.

Comments on the proposed rule are due by February 3, 2014.

See Deloitte's October 29, 2013, Accounting Journal Entry: SEC proposes rule on crowdfunding for more details.

Speeches from today's open meeting on crowdfunding are available on the SEC's Web site:

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