Grassroots Securities Deregulation


In July, I blogged here about the "crowdfunding exemption" petition, File No. 4-605, which the SEC had just posted to their website. The petition seeks to allow people to solicit investment of up to $100,000 in amounts capped at $100 without having to register with either the SEC or their state's department of corporations (a process which can cost $50,000 and up). Many people, myself included, believe that this simple exemption, which the SEC has the authority to allow, presents minimal risk to investors and would have many positive effects on innovation, culture, opportunity, the economy, etc.

The fun news is, the proposal seems to be gaining traction! It turns out that others have been advocating similar exemptions, including Michael Shuman, author of Going Local and The Small-Mart Revolution. And now, the American Sustainable Business Council, a lobbying and advocacy group with many right-on members, has decided to support SEC rulemaking petition 4-605 as part of a new "Sustainable Economic Development" campaign, which will also encourage the SBA (Small Business Administration) to promote "TBL" accounting (Triple Bottom Line: financial, labor, and environmental). But note that the ASBC's new campaign will be on their back burner (and won't appear on their website) until January or so, because they're currently focused on other efforts, which require the current Congress during its remaining time in session.

Meanwhile, Jenny Kassan of the Sustainable Economies Law Center (SELC), who authored 4-605, did a great radio interview about the petition on Oct 29 on "U Need 2 Know" with Frank Knapp (tagline: Talk Radio for the Brain), on WOIC 1230 AM, Columbia, SC. Knapp starts out by saying he's "fascinated" by our proposal. The interview is about 12 minutes long-- check it out!

Members of the public are invited to comment on the proposal by emailing with "File No. 4-605" in the Subject line. All comments are posted to the SEC's website here, and a nice variety of people have sent in original and thoughtful comments, including Michael Sauvante, Mark White, James J. Angel, Danae Ringelmann, Eric Saint-Andre, Andres La Saga, Peter J. Chepucavage, and myself.

Also, CREDO Action member Mimi Plevin-Foust has posted a petition on that does a terrific job of summarizing the issue and lets you submit a comment to the SEC by clicking a "Sign" button. Mimi's original goal of 100 signers was quickly met, so she raised it to 200, and then 500. Note that the letters generated by the CREDO/ petition are sent to the office of SEC Chair Mary Schapiro, not, so they will not appear on the SEC's website. (Even if they did, they would not be listed individually; the SEC handles robo-letters by tallying them anonymously as "Letter Type A", as you can see in the comments submitted for this previous petition: 2195 unnamed / undated robo-signatures tallied at the top of the page, and about 25 original letters listed by date and author.)

Someone from the White House Office of Science and Technology Policy (OSTP), the same office that likes Maker Faire, MAKE, and Mythbusters, contacted me to recommend that I attend the SEC Government-Business Forum on Small Business Capital Formation (a.k.a. Small Business Forum) next Thursday, November 18th. He said that OSTP is looking at crowdfunding as a possible way of promoting entrepreneurship and high-growth startups. Great! This was very encouraging, and others who also know Washington have made the same suggestion. So I'm going, along with representatives from the SELC, who drafted File No. 4-605, the ASBC, and many others. Almost every day over the past week, I've learned about someone else from some other interesting-sounding organization or company who will be joining our crew at the all-day forum. It's open to the public, so come on down! You can register to attend in person or remotely.

A bunch of us are also gathering the night before the forum, Nov 17th, at CommonWealth Gastropub starting at around 7:30, to meet in person, hang out, and scheme. All are welcome-- it should be interesting and fun!

As for the SEC Forum itself, the stated purpose of which is for the SEC to listen to the needs of small business, the official agenda indicates that it's all presentations and discussion by the SEC and their invited panelists until 2pm, at which point we reassemble into breakout groups to develop recommendations (we'll all be in Room 6000). The agenda does not make it clear how the resulting recommendations make it back to the SEC, and also indicates that that neither SEC Commissioners nor SEC staff are expected to be present at these discussions. So I guess we'll be left alone to play paper football and trash the place.

For more info on this campaign and to sign up for updates visit


  1. This is an excellent idea. Any time you can lubricate the process of starting new ventures it pays off in amazing ways.

    This process really needs to have a cap more like $2 million, though. $100K isn’t enough to do anything, really. And if the individual cap were $1000, it still wouldn’t present undue risk for the investor. I mean, the cost of unexpected car repairs or a trip to the emergency room can cost that much, and it doesn’t ruin most folks.

  2. I like the idea of keeping the individual investment value low until the bugs in the code/legislation are sorted out.

    The problem with upping the individual amount to $1,000 and a cap of $2 million is that it will encourage a lot of scams that aren’t real projects – but use the ‘crowdfunding’ legislation as a way of keeping it legal and end up sullying the name of crowdfunding forever.

    Otherwise people go door to door in poor neighbourhoods – ‘selling’ fabulous investment opportunities for a mere $1,000 … with payment schemes and arrangements to garnish the investor’s wages directly if they can’t pay up now.

    When the entire scheme falls apart it would be impossible to prosecute – because the door-to-door investment wranglers did absolutely nothing wrong … they just offered a crowdsourcing investment scheme to people.

    I’m a big fan of simplified rules to assist innovation – but the exemption will get abused if there is zero oversight. In this age of technology it doesn’t seem unreasonable that every crowdsourcing venture shouldn’t be registered – a simple webform would get a registration for the scheme with a nominal fee (under $100) and the details put online for all to see.

    It could also require a mandatory followup – just a ‘fill in the blanks’ progress report – including complaints monitoring like the BBB does. That way we could track automatically and have real information to base decisions on – such as a decision to increase the amounts later on.

    If the webform didn’t require a fee then it will automatically be filled with spam – there would be a million submissions every day – each one causally mentioning the benefit of Viagra…

    It would be a workable compromise.


  3. I think the $100.00 cap too low. Revenue is required for many of the job creation projects I have thought of. We should be able to raise millions. There can always be transparency with a Board made up of solid citizens to assure no misuse of funds. A project set up for “real people” could be monitored and verified.

    The idea that fraud exists and can’t be found is un-supportable. If you look, and fraud does exist, it can be found.

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