SEC Reminder: Red Light on Crowdfunding

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Private Startup and Growth Companies Must Wait for JOBS Act Rules

Stop And Wait for SEC Green Light

Last week, the Securities and Exchange Commission (SEC) issued a notice reminding everyone that crowdfunding is still unlawful until the SEC adopts new rules.  Under the CROWDFUND ACT, there is a potential way to raise capital for start-up businesses from the public, using the internet.  Here is what the SEC notice says:

“On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.”

Also, the SEC has not repealed the ban on general solicitation, that is part of Reg D Rule 506 offerings.  The SEC has 90 days to amend its existing rules to remove the prohibition on general solicitation and advertising in offers made under Rule 506, provided that securities are sold only to accredited investors.  It is widely anticipated that the SEC will require that companies will be required to get more engaged in verifying that prospective investors are accredited, and not simply rely on a checked box in a subscription agreement or a questionnaire completed by the potential investor.







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