SEC Crowdfunding Exemption action: File No. 4-605


When I guestblogged here last year, I wrote about crowdfunded securities. The upshot was that crowdsourcing platforms like Kickstarter can't support investment, because that's illegal; they can only offer tiered "perks" for donations at various levels. But I (and others) believe that crowdfunded securities should be legal without expensive SEC registration under certain conditions, starting with if individual investment is capped at a relatively low figure, like $100.

In that post, I also floated the idea of crowdfunding a campaign to pursue such a "crowdfunding exemption." I invited people to contact me if they wanted to keep up with such efforts, and got nice feedback from a bunch of folks. Encouraged, I dug in some more and found out that getting something like this going would actually be easier than I thought. First of all, the SEC has the authority to rewrite its own regulations, without any congressional review (which sounds like a recipe for corruption, and indeed…). Second, the SEC, via its website, lets anyone submit Petitions for Rulemaking and solicits comments on these petitions. You send it, and they will post it– and then also post all the comments they receive. This quiet backwater of the SEC's website struck me as good territory for some crowd action.

Now, a half year later, all the pieces are in place. A campaign on IndieGoGo quickly raised the money to fund the Sustainable Economies Law Center (SELC) to draft the petition, which was completed last week. I'm thrilled at how the petition came out– it's very well researched and argued, and joy to read. The SELC sent the petition to the SEC last Thursday, and as of this morning, the SEC has posted it to their website, as File No. 4-605. You can see the list of funders in the first footnote, at the bottom of page 1. Huzzah!

In addition to the $100 cap on individual investment, the petition recommends: a $100,000 cap on the total offering; offerors can only be individuals; offerors can't have more than one offering open at a time; and disclaimers must be included stating the possibility of total loss of the investment, and that investors must carefully evaluate the offeror's trustworthiness.

This all sounds good to me, but maybe the cap should be $50, or $500, or $5000. The more thought that goes into this, the better, and now that the petition is on the SEC site, it's time for all of us involved to spread the word. For anyone who's interested, here's what you can do to help:

1. Email the SEC's Office of the Secretary at rule-comments at sec dot gov Include "File No. 4-605" in the Subject: header. If the document is an attachment, indicate the format or software used See the SEC's How to Submit Comments page for more procedural recommendations, but disregard the references to an online form or file numbers beginning with "S7-" or "SR-", which refer to other types of documents. You can also send your comments as hardcopy in triplicate via postal mail, for them to scan and post. (Either way, please keep it relevant and polite– amusing though it may be to have your prank page appear on the website of the United States Securities Exchange Commission.)

2. CC the message to comments at crowdfundinglaw dot com — this is just for me to archive what's been sent, to see if anything isn't making it onto the SEC site.

3. Explain in your own words what you think of the idea and what your personal interest in it is. Fine with me whether you're for it, against it, or somewhere in between– the main thing is just to encourage the SEC to consider this issue and open a dialog. Note that if you cut and paste, they will designate your letter as an example of a "Type" rather than an original contribution, which presumably carries less weight. I don't think burdening the SEC with copy-pasted activist spam will make any friends there or help the cause.

4. Spread the word!

You can follow this effort at my freshly-minted Change Crowdfunding Law blog.

SEC File No. 4-604: Petition for Rulemaking: Exempt securities offerings up to $100,000 with $100 maximum per investor from registration.