The SEC Is About To Make Crowdfunding More Expensive 366
PapayaSF writes "Proposed new rules require that funding portals register with the Securities and Exchange Commission and the Financial Intermediary Regulatory Authority. In addition, investors must have access to a business plan, use of proceeds, a valuation of the company, and financials, so Certified Public Accountants may be needed. The SEC estimates that for amounts under $100,000, the fees will be 12.9% to 39% of the money raised, though it may drop to under 8% for higher amounts. Is this needed regulation, or bureaucratic overreach?"
Re:Thanks Government (Score:5, Informative)
This doesn't effect Kickstarter. The SEC only cares about crowd funded securities. I don't know of any kickstarter campaigns that gave stock as a reward.
Re:I think this isn't talking about Kickstarter (Score:5, Informative)
Heaven forbid anyone read the actual source material.
Looking at just the article, it's hard to imagine this applies to people kicking in 20 bucks to get access to some doodad. Looks like it's more geared towards people raising lots of money in exchange for equity of some kind. Hence, security. Think the film UHF, less Pebble. Also given they are talking about income slices between 100k, 500k, and a million dollars.
Re:Overreach (Score:5, Informative)
"Penny stocks are the playground of scammers..."
So is investment banking, apparently. Is this just another area the SEC can fail at?
Re:Perhaps not such a big deal (Score:5, Informative)
Right now, if you want to crowdfund something and give the funders stock, you can't do it. After this change, you will be able to (but if you aren't giving stock, you can do what you were doing before).
Which makes sense since that's what the SEC does (Score:5, Informative)
The "S" in SEC stands for Securities. It is their job to regulate that kind of thing.
As you say, Kickstarter is different. Not only are you not getting any equity in the company, you aren't getting any financial stake in the project or anything. It is an investment for creative return, not financial, and thus not something that would be covered.
You need to pay income tax on Kickstarter funds, of course, but that's all. They aren't an investment as far as the SEC is concerned.
Re:sounds like! (Score:5, Informative)
The US toy safety regulations are a commonly cited example. Following the scandal involving lead paint being used on toys imported from China, the US passed strict safety regulations for toys in the Consumer Product Safety Improvement Act. Well-intentioned, but they also cost a fair bit to follow - every new model of every toy needs to be sent to an independant inspector to run everything from mechanical tests to chemical analysis of the plastic. This is small change to a toy manufacturing giant, but a crippling expense to a small business. There's an exception to some of the regulations for those manufacturers who register as a 'small batch manufacturer,' but it's still more paoerwork overhead.
There's also some speculation about very small scale - there's no exception for nonprofits. If you were to knit some toys to sell at a charity event, that's now a felony - you can't see toys that havn't been subjected to the required safety testing. Up to a five year jail term. In practice regulatory generally know that this is one of the cases where actually enforcing the law would be silly, but such 'informal exemptions' are not good legal practice.
Re:That's why we can't have nice things. (Score:5, Informative)
And what will we be getting in return for their wise and valuable oversight?
You will get to know how much money is being brought in, and how much is being spent. If that's worth it, I don't know, but that's the answer to your question.
Misleading summary (Score:5, Informative)
If you actually bother to read the Federal Register text [federalregister.gov], you can see in the second paragraph of the introduction that the JOBS Act, and this subsequent regulatory structure, only applies to crowdfunding where the reward is a security. It specifically explains that this is different from the current model of crowdfunding in the U.S., where the donors receive some "token of value" related to the project, not a share of future financial returns. The SEC isn't trying to regulate the current system, but is trying (as directed by that law) to allow crowdfunding where the donor award is a security; the current regulatory structure, based on the Securities Act, largely makes this sort of model impossible due to the various requirements of public offerings.
So, there's nothing to get up in arms about. This is just a move by the SEC to allow something that isn't currently permissible under U.S. law, not an attempt to "tax Kickstarter" or "regulate Indiegogo" or whatever other nonsense people claim.
Misleading, Wrong kind of Crowdfunding (Score:4, Informative)
This is NOT about Kickstarter and other crowdfunding project sources. This is about INVESTMENT CROWDFUNDING, which is very different and yes is regulated.
Kickstarter etc typs Crowdfunding: You give money and get a product in return, or whatever was offered at your level of funding you gave.
Investment Crowdfunding: offering an actual return on investment in exchange for funding, such as shares in the company, a portion of the profits, etc. which are things that do fall under the normal purview of the SEC.
Way to not do your homework submitter. Nothing to see here folks, move along.
Re:Overreach (Score:5, Informative)
I think you are over reacting. This basically has nothing to do with kickstarter or kickstarter like funding efforts unless they are selling parts of the company. Most kickstarters I've ever seen are selling a product (and sometimes not even that), not securities (shares of their company).
Re:Thanks Government (Score:5, Informative)
Where do you see that in the article?
Paragraph 3, sentence 1: "The legislation requires that the selling of crowdfund securities take place on registered websites" (emphasis mine).
please take down this thread - it's misleading (Score:5, Informative)
not about crowdfunding as we know it AT ALL.
it's about different kind of crowd funding where you're participating in shares.
Re:39%? Yikes! (Score:4, Informative)
Re:Overreach (Score:5, Informative)
It's overreach
Also known as "needed regulation" for a problem that does not exist.
If you would read the actual article, it was pointed out this is regulation that is being proposed because of a law which has already been passed by Congress & signed by President Obama that required the SEC to propose new rules for this kind of activity.
This is what you get when such laws get passed, and to get this "fixed", it will take going to the U.S. Congress to repeal the law that required this to happen in the first place. The overreach, as it were, is that the federal government is sticking its nose into regulating commercial activity in a manner that is unconstitutional in the first place..... but don't tell those who think the interstate commerce clause gives the federal government a blank check to do any damn thing it wants with regards to business activity.
The point of the Interstate Commerce Clause in the U.S. Constitution was to cut through regulations and to prevent states from prohibiting commercial activity between states. It was there to stop things like the tariff wars that happened between New York & New Jersey that nearly started the U.S. Civil War a few decades earlier with the fighting across the Hudson River instead of the Mason & Dixon line. How something designed to prevent a shooting war ends up regulating somebody trying to make a YouTube movie is utterly stupid.
Re:Thanks Government (Score:4, Informative)
My next kickstarter was going to promise selling shares in the company to major backers!
Surprises me nobody has done that yet. Or at least I haven't noticed it.
Nobody has done it yet because it has been illegal all this time. These are the rules the SEC was instructed to create by congress in the JOBS Act of 2012 (Jumpstart Our Business Startups Act) which made it legal to shell shares via crowdfunding.
Re:Overreach (Score:5, Informative)
I think you are over reacting. This basically has nothing to do with kickstarter or kickstarter like funding efforts unless they are selling parts of the company. Most kickstarters I've ever seen are selling a product (and sometimes not even that), not securities (shares of their company).
Correct. In fact, crowdfunding resulting in ownership is not yet allowed in the US. The legislation is being put forth to enable it. It can't make it "more expensive" if you can't presently do it.
Re:Overreach (Score:5, Informative)
If what you have received for your Kickstarter investments have been things like T-shirts or early releases of a game, then the SEC rules discussed in the article would not apply. These rules only apply if the crowdfunders are buying shares of the company.
Re:Overreach (Score:4, Informative)
Maybe it's bad writing,
It is bad writing. At least quote the article not what some random lamer wrote as their personal summary. None of this money is going to the SEC.
I think this story may have generated the most knee-jerking seen on slashdot in years.
Re:Door slamming shut (Score:5, Informative)
I'm assuming the answer is "oh, I misunderstood."
(c) Neither the summary nor the article were particularly clear on whether these new rules would apply to Kickstarter-style merchandise pre-order crowdfunding. Reading the proposal [sec.gov], it becomes clear that the new rules would apply to the sale of securities that provide the investor a possible return in the form of a share of future revenue or profits.