JOBS Act Crowdfunding Intermediaries FAQs Released | Practical Law

JOBS Act Crowdfunding Intermediaries FAQs Released | Practical Law

The SEC's Division of Trading and Markets issued FAQs providing guidance on the crowdfunding intermediary provisions of the JOBS Act.

JOBS Act Crowdfunding Intermediaries FAQs Released

Practical Law Legal Update 7-519-4018 (Approx. 3 pages)

JOBS Act Crowdfunding Intermediaries FAQs Released

by PLC Corporate & Securities
Published on 10 May 2012 • USA (National/Federal)
The SEC's Division of Trading and Markets issued FAQs providing guidance on the crowdfunding intermediary provisions of the JOBS Act.
On May 7, 2012, the SEC's Division of Trading and Markets issued frequently asked questions (FAQs) providing guidance on the crowdfunding intermediary provisions in Title III of the JOBS Act. The JOBS Act requires the SEC to adopt rules to implement Title III before December 31, 2012 (270 days after the JOBS Act's enactment). Among other things, the FAQs clarified that:
  • To operate as a crowdfunding intermediary, an individual or entity must register with the SEC either as a broker or as a funding portal. However, the SEC must complete its rulemaking before anyone, including currently registered brokers, can act as a crowdfunding intermediary (see Legal Update, SEC Clarifies That Crowdfunding Remains Unlawful Until It Adopts Rules Implementing New JOBS Act Exemption).
  • The SEC rules will address the form and process needed to register with the SEC as a funding portal.
  • Funding portals must also become members of a national securities association registered under Section 15A of the Exchange Act. Currently, FINRA is the only national securities association registered under Section 15A.
  • The JOBS Act restricts funding portals from engaging in certain activities, including:
    • providing investment advice or recommendations;
    • soliciting purchases, sales or offers to buy the securities offered or displayed on its website or portal; and
    • holding, managing, possessing or otherwise handling investor funds or securities.
  • The JOBS Act also imposes certain duties on crowdfunding brokers and funding portals, including:
    • providing disclosure as required by SEC rules;
    • protecting the privacy of information collected from investors;
    • ensuring that each investor reviews the investor education materials, affirms that it understands the risk of loss of its investment and demonstrates that it understands the risks generally applicable to investments in startups, emerging businesses and small issuers;
    • ensuring that all offering proceeds are only provided to the issuer when the target offering amount is met and allowing investors to cancel their commitments if the target offering amount is not met; and
    • ensuring that no investor in a 12-month period has purchased crowdfunded securities that, in aggregate from all issuers, exceeds the investment limits under the JOBS Act.
The Division of Trading and Markets may update these FAQs periodically.
For more on crowdfunding and the JOBS Act, see Practice Notes, JOBS Act: Crowdfunding Summary and Road Map to the Jumpstart Our Business Startups (JOBS) Act of 2012.