SEC Crowdfunding Rules and General Solicitation

Published: 7/15/2013 9:35:03 AM

I've read a lot of comments to recent blog posts and articles on what the new rules of the SEC mean for crowdfunding and have seen a lot of questions and frankly misinformation being shared.

If you want to know about what the SEC has done, it has published its amendments to Rule 506 which covers general solicitation here:

It's a long document, but I urge you to either read it or share it with people whom you know who are interested.

The rules on investor accreditation and how an Issuer (the company selling the securities) can legally determine investor accreditation have changed significantly.

For example, the smaller the investment amount, the greater the effort the Issuer will have to undertake to determine accreditation. That's just one criteria the SEC references. The SEC specifically states that the old way of just checking a few boxes is unacceptable, unless perhaps you are dealing with a QIB (Qualified Institutional Buyer).

The rules are now more complex and the burden of proof to prove that an investor is accredited is squarely on the Issuer, especially an investor that is a "natural person". As a result, Issuers of securities through general solicitation will likely be asking for much more information from prospective investors, in order to avoid liability. I can just imagine how eager the SEC will be to make an example out of someone who thinks they can get away with being sloppy.

Note that in reading the SEC rules, the responsibility is on the "Issuer" - so pushing off the processing of determining which investors are accredited to some crowdfunding portal will not remove you and your company from responsibility. The SEC holds Issuers responsible for all aspects of the solicitation.

So, to all of you prospective investors who want to invest $1,000 in your favorite company, be prepared to upload multiple years of tax returns, bank statements, paycheck stubs and investment history in order to qualify to send in your check.

And to you prospective Issuers, the notion that general solicitation is going to be an easy and liability-free way to quickly raise money is not supported by what I read in the SEC rules. I urge you to inform yourself of the responsibilities to be required of you...

Happy fundings!

Don Jones


Don Jones
CEO, VentureDeal

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