International legal power house BakerHostetler released an executive alert today regarding the Jobs Act and the various components of the legislation including crowdfunding. The release commented on:
1. Rule 506(c) and Broker-Dealer Registration Exemption
a. The Old Rule 506 and Intermediaries
b. The New Rule 506(c) and the New Intermediaries
2. Crowdfund Investing and Funding Platforms
The synopsis of the Jobs Act update included the summary:
CONCLUSIONS
The FAQ and the Interim Form raise a number of potential issues for firms that are looking to raise capital through general solicitation or that plan to operate a funding portal. Companies looking to raise capital through a funding portal that is not registered as a broker-dealer should not pay any type of compensation that would invalidate the funding portal’s exemption from broker-dealer registration. While the FAQ indicates co-investments are permitted, the plain language of the Act and the guidance in the FAQ leaves open the question of whether private companies may pay funding portals a fee that would be comparable to the types of fees paid to finders (i.e., an introduction fee).
The Interim Form also raises questions regarding the level of supervision that FINRA will apply to crowdfunding platforms that are not operated by broker-dealers. As the primary regulator of broker-dealers, FINRA has substantial experience supervising such entities. FINRA has little experience regulating the new class of funding portals. It is unclear the level of scrutiny that FINRA will apply to applicants that seek to register as funding portals. However, based on the concerns about the Act that have been raised by state securities regulators, we do not believe FINRA will apply a light touch in regulating such entities. Finally, the FAQ raises the specter of state securities regulators asserting jurisdiction over funding portals that plan to facilitate Rule 506(c) offerings.
The alert in its entirety may be viewed here.