New York City (August 23, 2012) – In a letter to the Securities and Exchange Commission today, the Crowdfund Intermediary Regulatory Advocates recommended that the SEC consider rules that would keep a crowdfund investor’s right to rescind a crowdfund investment be kept as close as possible to the 21 day “cool off” period as provided under current securities law and regulations. The SEC is requesting comments from the public as it implements rules for crowdfund investing under the Jumpstart Our Business Startups Act.
A copy of CFIRA’s letter can be reviewed below. CFIRA pointed out that crowdfund campaigns run over a period of time, and a lengthy recission period could lead to unwanted manipulation. “We acknowledge that an unrestricted right to rescind could lead to fraud and manipulation whereby initial investors disingenuously commit to invest in an offering with the sole purpose of attracting new investors and then undertaking an orderly rescission of such commitments as new investors are attracted to the opportunity having been misled by investor interest,” CFIRA Board Members Kim Wales and DJ Paul advised the SEC. “It will further be difficult for a portal or issuer to determine when an offering has met its target offering amount if investors are permitted to rescind without any limitations.”
CFIRA recommended that the SEC considers that at the time an investor expresses intent to invest, during the minimum 21 day rescission period, the investment should be placed in “pending” status. “Offerings would be allowed to close at minimum 21 days after the offering is posted to a portal and the investor would remain in a “pending” status with the rescission right available until the day of issuance close,” Wales and Paul proposed in the letter.
CFIRA Comment Letter Final Rescission Period