It’s not easy to find examples of bipartisanship in Washington, but the Jumpstart Our Business Startups or JOBS Act surely was one of them. The law, signed into law by President Barack Obama in April 2012, contained a number of legislative proposals focused on boosting the funding of small businesses.
Among the provisions were one lifting the decades-old ban on public advertisements for private placement deals and another allowing firms to have more than 500 shareholders and remain private.
But some of the JOBS Act provisions have been slow in coming. In particular, the Securities and Exchange Commission took its time on rules related to investment crowdfunding.
In March, however, the SEC adopted final rules designed to ease smaller firms’ access to capital and increase investors’ choices. Those rules took effect in June.
Regulation A, an existing exemption from registration for smaller firms, was updated to allow the sale of up to $50 million of securities in a 12-month period. And non-accredited investors can get into the game, with certain limitations.
Some have criticized the new Reg A rules, saying they don’t do enough to protect investors. However, most knowledgeable observers say the SEC has achieved a good balance of protections and greater access to capital for small firms.
Meanwhile, federal regulators have shown a welcome readiness to hold crowdfunding projects accountable. The Federal Trade Commission recently took legal action against Erik Chevalier, who had launched a campaign on Kickstarter.com, later canceled it and, despite his promises to do so, never refunded his backers. The SEC obtained a settlement.
This case is part of the FTC’s initiative to protect consumers delving into new and emerging financial technology, also known as FinTech. Those offering “these exciting products must keep in mind important consumer protection principles,” the commission said.
That’s an important message to deliver while at the same time allowing small firms greater flexibility in raising capital.
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