When President Obama signed the JOBS Act into law on April 5, 2012, it included the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012” (CROWDFUND Act) which would permit companies to raise up to $1 million in equity via crowdfunding. The Act directed the Securities and Exchange Commission (SEC) to issue implementing regulations within 270 days of passage. With over 450 days passed since enactment, the SEC still cannot say when regulations might emerge.
In April, SEC Chief Counsel David Blass stated that “It just is not possible for me to say a date in which it will or will not be up and running.” Mary Jo White was sworn in as the new SEC commissioner that month, while her views on thjs issue are unknown it is believed that her predecessor was somewhat hostile to the Act.
The delay triggered the House of Representatives to pass H.R. 701 which set an October 31, 2013 deadline for implementation of the regs.
While the SEC delays, crowdfunding skeptics are growing in number. One securities lawyer noted that:
Despite the sound and fury, the crowdfunding exemption will do little to help small start-ups raise capital. That’s because it will not be economically feasible for most companies to comply with the filing and disclosure requirements; take on the risk of legal liability; and undertake annual reporting obligations to raise a maximum of $1 million in a 12-month period.
In addition, a recent docunentary on crowdfunding has raised questions about fraud in crowd funding, as it revealed a fraudulent campaign that had been featured by Kickstarter to fund Kobe Red, promising to provide a line of flavored beef jerky made from organic, beer-massaged beef from Japan. Kickstarter pulled the campaign minutes before the passing of the deadline under which the $120,000 raised would be paid out.