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The Almighty Buck Government United States

The SEC Is About To Make Crowdfunding More Expensive 366

Posted by Soulskill
from the another-pot-of-honey-they-can-dip-their-fingers-in dept.
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?"
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The SEC Is About To Make Crowdfunding More Expensive

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  • Overreach (Score:5, Insightful)

    by redmid17 (1217076) on Sunday January 05, 2014 @03:23AM (#45869137)
    It's overreach
  • 39%? Yikes! (Score:4, Insightful)

    by Tablizer (95088) on Sunday January 05, 2014 @03:25AM (#45869145) Homepage Journal

    There should be an upper limit, perhaps around 10% of revenues.

  • So the solution (Score:5, Insightful)

    by DiSKiLLeR (17651) on Sunday January 05, 2014 @03:26AM (#45869147) Homepage Journal

    So the solution is to just use croudsourcing outside of the US? If you want to start a croudsourced business, move to Canada or elsewhere in the world?

  • You have money (Score:3, Insightful)

    by Laxori666 (748529) on Sunday January 05, 2014 @03:26AM (#45869149) Homepage
    They want it

    They will get it
  • by Anonymous Coward on Sunday January 05, 2014 @03:26AM (#45869151)

    And what will we be getting in return for their wise and valuable oversight?

  • Thanks Government (Score:3, Insightful)

    by Anonymous Coward on Sunday January 05, 2014 @03:27AM (#45869153)

    Fuck. If a company can put all of that together, they probably don't need crowdfunding in the first place. That's the ENTIRE POINT of having kickstarter in the first place! For ideas by small groups or single people who have nothing but a good idea. Everyone donating already understands the risk.

  • Re:sounds like! (Score:5, Insightful)

    by Tablizer (95088) on Sunday January 05, 2014 @03:36AM (#45869165) Homepage Journal

    Or maybe big business trying to squash competitors.

    While one often imagines left-leaning socialists wanting more regulations on everything, many times such legislation is merely big companies lobbying to stifle smaller companies, or even big competitors in slightly different industry categories.

    In Utah, some big companies lobbied to regulate the cosmetic industry in a way that put a lot of mom-and-pop beauty salons out of business. Thus, people would go to big-co franchises instead. (That's why Utahians are so ugly :-) .... just kiddin'

    Businesses only hate regulations that hurt themselves, but love regulations that stifle competition.

    Existing patent laws appear to be a form of this: they favor big patent portfolios and big lawyers, because smaller companies and individuals don't have the lobbying money behind them to make the patent rules more small-company-friendly.

  • Re:Overreach (Score:4, Insightful)

    by Anonymous Coward on Sunday January 05, 2014 @03:37AM (#45869171)

    It's overreach

    Also known as "needed regulation" for a problem that does not exist.

  • by beernutmark (1274132) on Sunday January 05, 2014 @03:41AM (#45869189)

    Having not read the actual legislation, the following quote from the article seems quite important: "The legislation requires that the selling of crowdfund securities take place on registered websites."

    Notice the phase "selling of crowdfund securities." I think that most crowd funding doesn't involve the sale of securites and in fact most are just clever ways of pre-selling merchandise not yet made without having to give away any equity at all.

    Although I could be talking complete nonsense.

  • by Dachannien (617929) on Sunday January 05, 2014 @03:41AM (#45869195)

    I'm not completely sure, but I think the SEC is talking about situations where a company avoids the traditional IPO process and instead "crowdfunds" the sale of securities in their company [bankrate.com] (either debt or equity). Kickstarter is generally different, because the return on "investment" is in the form of a set non-monetary reward that is more similar to a purchase than an investment.

    What is needed, though, is some clarity in the rulemaking process to ensure that Kickstarter and other similar sites can feel comfortable that they are not at risk of being caught up in this net.

  • by Jah-Wren Ryel (80510) on Sunday January 05, 2014 @03:43AM (#45869199)

    If a company can put all of that together, they probably don't need crowdfunding in the first place. That's the ENTIRE POINT of having kickstarter in the first place!

    This has nothing to do with Kickstarter. This is about selling SHARES in these companies, not about prepaying for potential products. I'm no expert, but best as I can tell this rules will have zero effect on crowd-funding as sites like kickstarter and indiegogo have been doing it.

  • Re:Overreach (Score:3, Insightful)

    by Spy Handler (822350) on Sunday January 05, 2014 @03:46AM (#45869215) Homepage Journal

    It's the government's job to protect us from ourselves. Or so it thinks.

    Or put another way, a regulatory agency exists to create regulations.

    While I would agree that some regulations are necessary for a functional society, this ain't one of them. The people giving out money to Kickstarter and its ilk are not poor, not illiterate and they know what they're getting into. They're spending disposable income on toys and entertainment, not their rent money.

    Personally I don't give money to crowfunding and my opinion is that if some scoundrel absconds with your funds, well you kinda deserve it.

  • Re:Overreach (Score:5, Insightful)

    by Jah-Wren Ryel (80510) on Sunday January 05, 2014 @03:52AM (#45869241)

    > It's overreach

    I don't think so. The SEC regulates selling stock in companies and that is what they are doing here. It was less than a year ago that congress passed a law that would permit selling of shares via "crowdfunding." This is basically a way to solicit angel and first round investors. If a company wants that kind of money it seems to me that the stuff the SEC is requiring is a very reasonable bare minimum. Penny stocks are the playground of scammers, the SEC doesn't want the hype around crowdfunding to give them a new playground.

  • by mysidia (191772) on Sunday January 05, 2014 @04:45AM (#45869395)

    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.

    If so... it's an improvement.... but the requirement that the entrepreneur front, essentially 39% of the funds, to raise less than $100K.. would appear to be unduly burdensome. The requirement for a CPA audit would also appear to be unduly burdensome.

    The person raising this money, should have a less-expensive option: that does not require losing a significant amount of their funding. And they should have an option of disclosing that no audit has been or will be performed.

    Whether no audit makes the offer unsatisfactory or not, should be the decision of potential investors, to be made based on their careful judgement in selecting potential investments, not the federal government.

  • Re:Overreach (Score:5, Insightful)

    by Will.Woodhull (1038600) <wwoodhull@gmail.com> on Sunday January 05, 2014 @04:46AM (#45869401) Homepage Journal

    Also known as "needed regulation" for a problem that does not exist.

    Precisely.

    No mutual funds, retirement funds, or anything similar should have anything to do with crowdfunding. The SEC has no place here. Crowdfunding is similar to buying raffle tickets at a Church bazaar and the SEC has no business messing with those, either.

    The SEC has more than enough to do with figuring out how to manage their direct mandate and prevent Big Finance from screwing us all over yet again with some new and clever shiny like the sub prime mortgage instruments, etc. They still need to clean their own house. And quit looking around for something to divert attention from they way that agency has managed to so fuck things up for 20 or more years.

  • by Half-pint HAL (718102) on Sunday January 05, 2014 @07:37AM (#45869789)

    No mutual funds, retirement funds, or anything similar should have anything to do with crowdfunding. The SEC has no place here. Crowdfunding is similar to buying raffle tickets at a Church bazaar and the SEC has no business messing with those, either.

    Sorry, nope. Prizes for a raffle should be obtained before tickets are sold, so that everyone knows what they're buying. I may not be guaranteed to win anything, but I know somebody will, and that the winning is determined by random chance. In crowdfunding, I may personally be taking a gamble, but if I "win", so does everybody else, and that winning is not regulated by chance, but by the ability of the project team to deliver.

    These abilities vary from project to project, unlike the rules of statistics, which are universal. It is therefore vital that someone assesses the credentials of crowdfunding projects, rather than leaving uninformed members of the public confused and convinced by pseudo-scientific technobabble.

  • Re:Overreach (Score:5, Insightful)

    by Mad Bad Rabbit (539142) on Sunday January 05, 2014 @09:23AM (#45870075)

    This is all about small time investors and the attitude that somebody with a spare hundred dollars is incapable of being able to make an informed decision about a potential investment opportunity.

    Sounds more like the attitude that somebody with a spare hundred dollars should give the government $12 before they do anything else with it..

  • Door slamming shut (Score:5, Insightful)

    by fyngyrz (762201) on Sunday January 05, 2014 @10:11AM (#45870263) Homepage Journal

    That may be so, but what this amounts to is closing a door we just managed to open for small operations. Here we go again, only ops with access to big business resources will typically be able to meet these proposed criteria. If you had doubt that big business interests drive our legislation, this should help resolve those doubts. Small operations can pose a huge threat because they are, at times, considerably quicker off the mark than your average corporation with its bean counters, lawyers, middle management, reviews, and HR making sure you only get the most mediocre employees possible.

    This is mommy government at its typical get-in-the-way pursuits. The problem is, aside from complaining in fora like this one, there isn't much we can do about it unless some interested party's got deeper pockets than the corporations. Not too likely, seems to me.

  • by Nimey (114278) on Sunday January 05, 2014 @11:10AM (#45870527) Homepage Journal

    You're bringing facts into a thread dedicated to foaming about a flamebait[1] summary and how the government is inherently evil.

    [1] I almost wrote "clickbait", but clearly hardly anyone's clicked it.

  • Re:Overreach (Score:3, Insightful)

    by Khyber (864651) <techkitsune@gmail.com> on Sunday January 05, 2014 @11:35AM (#45870661) Homepage Journal

    "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"

    You better re-read the commerce clause, as what it states clearly falls under what is happening here - regulation of commerce between the states. Crowdfunding doesn't stay in one state, and thus the government has the right to control it.

    I'm all against gov't overreach, but this is clearly stated in the constitution.

  • Uh, no... (Score:4, Insightful)

    by rsilvergun (571051) on Sunday January 05, 2014 @12:20PM (#45870935)
    You're local EPA can measure it's success in PPM of various pollutants. But we sorta forget that (which is odd, what with all the news of China's cities, or with the "Smog Days" in major American Cities).

    Police measure crime rates. The Fed Reserve can measure economic growth. And the SEC can measure how much money was lost by investors on shoddy investments.

    A bit more regulation before the housing bust woulda been nice. Anyone remember Glass-Seagal? As Liz Warren pointed out we had 50 years w/o a major bust until we repealed that...
  • Re:Overreach (Score:4, Insightful)

    by Aristos Mazer (181252) on Sunday January 05, 2014 @01:04PM (#45871249)

    No, this is a law that makes it legal to do something that was completely illegal before. Read the full article -- until the law was passed, it was totally illegal in the USA to sell shares in a new company by crowdsourcing. The new law makes it legal and directs the SEC to create rules under which it could happen. This is the rule the SEC is currently proposing.

    So, far from fixing a non-existent problem, this law is fixing a problem that many of us in tech have said exists: that small companies cannot get their start up funds from crowdsourcing their IPOs.

    I assume, armed with this new information, that you'll be cheering for President Obama taking action on this issue. I mean, there's a lot wrong with his administration, but at least blame him for things he's really screwed up, not for the stuff he's improved.

  • by Bite The Pillow (3087109) on Sunday January 05, 2014 @01:10PM (#45871303)

    The article is not clear, but this is traditional investing via crowdsourcing. Selling securities or equity, like a normal IPO. This makes the same rules apply everywhere, and closes a loophole advantageous to people who could go the traditional route but decide not to.
    Kickstarter, where you pre-order merchandise, does not seem to be affected.
    Do you think the SEC should regulate investing any differently because it happens on the web? I'm assuming the answer is "oh, I misunderstood."

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