SEC Causes Uproar Over Crowdfunding

Apr 10, 2013
Marcie Hardy

One year ago, millions of entrepreneurs and small business owners were excited by Obama’s sign off on the Jumpstart Our Business Startups (JOBS) Act. This act eased the United States Securities and Exchange Commission’s (SEC) regulations on funding for startups and small businesses. The only problem is that the SEC is dragging its heels. What could possibly be going on that it takes a year to come out with new regulations?

Fear of Fraud Stops the SEC In its Tracks

It’s the concerns over investment fraud that the SEC reports is causing the delay. Crowdfunding online has its advantages, but it also has its disadvantages. The advantages of it is entrepreneurs have more of a chance in getting the funds they need to start or grow a business, and investors have more opportunities to invest in for positive gains. The disadvantages are the bad eggs of the group. The ones that are out to collect funds with no intention on being successful with their business, which then leaves the investors at a loss.

These concerns are valid, but are they so grand that they can’t come to decision on rules that will decrease the fraud that is likely to occur? Many don’t believe so, according to one of entrepreneurs who attended the latest forum in Washington where David Blass, SEC chief counsel discussed that there was still no decision on the rules. Gregory Simon believes, “There’s another kind of fraud, and that’s when Congress and the president pass and sign a law, and thousands of companies organize according to the principles in that law…but academics and people in consumer groups who disagree with the law make it their mission to prevent the law from going into effect.”

No one knows exactly when the SEC will finish making the new rules in online crowdfunding because the SEC is tight lipped about it. This is even after the January 1, 2013 deadline President Obama set when the act went into effect. All that everyone wants to know is how the new equity-based crowdfunding will work, and what the new dos and don’ts will be with it all. Obama has already placed the limit of $1 million annually for U.S. campaigns, but that doesn’t take investors and entrepreneurs too far.

There May Be Rules in Sight

The good news is that there might be some progress soon. The new SEC chair has been elected, and she is much more in favor of the JOBS Act. She has tried to calm the frustrations of many of the investors anxiously awaiting the new rules by telling them they will be prioritized in her department. This may be a good sign, since the former chair Mary Schapiro didn’t favor Obama’s decision.

Read the update on the new SEC crowdfunding laws >

What to Do in the Meantime

Patience is a virtue; and this is a better time than any to put that into practice. Work with what you know and turn to already successful online crowdfunding sites such as Kickstarter and Indiegogo. While they may not offer everything you’re hoping for in the new equity-based crowdfunding proposed by the JOB Act, they still provide entrepreneurs and investors with opportunities. Once the rules finally come out of the SEC, everyone can cheer and sleep well at night knowing that they are now able to invest in more and with less fear of fraud.  And entrepreneurs?  Well we can get even less sleep at night putting that money to work.  But I have the feeling we’d all be ok with that.