There Is Light At The End Of The Tunnel; SEC Meets Friday To Vote On Final Title III Crowdfunding Rules

If you follow this industry at all you know that THE story dominating the space this week is the recent announcement of the Securities and Exchange Commission (SEC) that it will be meeting this Friday to vote on, and hopefully approve, final Title III Crowdfunding rules. After over three years of waiting it’s truly hard to believe that we could be days away from seeing the realization of arguably the biggest, and most anticipated, advancement in Crowdfunding … the enactment of Title III crowdfunding. Exactly what the rules will require however remains a mystery.

As announced this week, in an open meeting (aptly a “Sunshine Act Meeting”) taking place this Friday morning at 10am E.S.T., the SEC will meet to consider whether to adopt rules and forms to effectuate Title III Crowdfunding (i.e. the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933). It is anticipated that this meeting will also be streamed live online via the SEC’s website for those of us that cannot attend in person so get your popcorn ready. Since the JOBS Act was signed into law in April 2012, we have seen the seen the allowance of general solicitation in offerings made to “accredited investors” (i.e. Rule 506(c)/Title II offerings) and the modification of the previously unused Regulation A (Title IV) which permit a registered offering to be sold to accredited and non-accredited investors (e.g. a “mini-IPO”). That being said, many see Title III as the real heart of the JOBS Act; an exemption that will truly make it easier for startups and small business to access capital and for non-accredited investors to invest in such businesses.

WhiResources-21503-Gomez Aebro Sebastian_rsz_20150922175826le little is known about what the actual rules will look like, most of us are just too ecstatic about finally seeing a light at the end of a very, VERY long tunnel to care. Moreover, despite the time it took to get here, I know that the SEC has worked commendably on reviewing the endless number of Title III comments received to date and I believe they have a good handle on what needs to be done to make it work. As SEC Chairwoman Mary Jo White noted in a gathering of securities attorneys in New York City earlier this week, the SEC “cannot know with certainty how the new rules will work for investors and issuers in practice but will be taking steps to understand changes in the market due to the implementation of these new rules and to address any issues that may arise.” Following Samuel Guzik’s lead, I also believe special thanks should be paid to my fellow Northwestern Alum, Sebastian Gomez Abero, Chief of the SEC Office of Small Business Policy. I do not envy the amount of work he had to do to get us to this monumental point but I certainly admire him for it.

So what can we expect? Assuming the final rules, whatever they may be, are approved on Friday they must then be published in the federal register and will take effect 60 days after that. Best case scenario, we could wake up New Year’s Day to a new Title III crowdfunding world (as long as they do it quietly though, I’m generally not up until late on New Year’s
Day
). Also, I wouldn’t expect to see this industry to take off like a rocket. While you may several offerings posted right out of the gate, I expect that it will still take considerable time for Title III crowdfunding to catch on among, or frankly even be known by, the majority of the “non-accredited” general public. That being said, by all estimates this calls of “non-accredited” investors is expected to grow into a multi-billion dollar capital market in less than five years.

One last point to note, at the meeting the SEC will also be considering whether to propose amendments to Securities Act Rule 147 and Rule 504. These proposals should not be overlooked. As I noted in an earlier post, changes to these rules could have a huge impact on the effectiveness of currently enacted Intrastate Crowdfunding Exemptions which, despite naysayers, I believe will still be a very useful and effective tool for startups and small business to access capital from accredited and non-accredited investors.

About Anthony Zeoli

Anthony Zeoli is an experienced transactional attorney with a national practice. Specializing in the areas of securities, commercial finance, real estate and general corporate law, his clients range from individuals and small privately held businesses to multi-million dollar entities. Mr. Zeoli is also an industry-recognized crowdfunding, peer-to-peer (P2P) lending and JOBS Act expert and is currently an active board member and Secretary of the CfPA (Crowdfunding Professional Association) and an active member of CFIRA (Crowdfund Intermediary Regulatory Advocates). Most recently he drafted Illinois House Bill 3420, a bill which provides for an intrastate crowdfunding exemption in Illinois and which was unanimously approved by the Illinois’ house and Senate. Anthony is also currently actively involved with the entrepreneurship program at the University of Illinois at Chicago as both a mentor and a student advisor and is an active advisory board member of the New York Distance Learning Association (NYDLA).
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