Crowdentials is a service provider that “provides a suite of automated, regulatory compliance solutions” for investors and issuers. We recently caught up with Rohan Kusre, COO and co-founder of Crowdentials, to get his thoughts on the recently proposed rules out of the SEC.
Crowdfund Insider: In a general sense, what was the reaction from within Crowdentials to the proposed rules?
Rohan Kusre: First and foremost, we are excited just to see progress being made with the Title III. Its been a long time coming! We were glad to see the discussion of the rules as it allows greater access to capital while preventing fraud from taking place. However, we recognize the proposed rules for what they are at this stage – proposed. For the average crowdfunder, the rules may seem unbalanced and far reaching. However, these safeguards are necessary for the budding industry to thrive. The regulations put a heavier burden on companies and investors in order to ensure that fraudulent activity is kept at bay. Luckily with the aid of third party solutions, these burdensome regulations can be easily navigated. This is why companies like CrowdCheck (who take care of the due diligence) and Crowdentials (who take care of Title II and Title III compliance) exist.
Did Crowdentials plan on offering investor verification services for Title III similar to your current offering for Rule 506(c)?
We have always planned on offering compliance solutions for all applicable regulations in Titile III. Our mission has always been to help companies comply with regulations in the JOBS act in a secure and cost effective manner. We have a suite of compliance software solutions that work as well as in-house compliance teams but without the variable of human error.
On the subject of investor certification, what (if anything) changed with the proposed rules? Were there any assumptions made that you’re left reassessing?
Well for 4a6 offerings are going to work a bit differently than 506(c) offerings. With 4a6 offerings, investors will have the luxury of using a self-certification process based around pre-set cap limits. If an investor makes $80,000 a year and invests $16,000 in a company while lying about his income on paper – so be it. That is, until there is a problem and the SEC finds out about the fraudulent activity. This offers companies two distinct options for raising capital: utilize equity crowd funding and bring on unaccredited investors for small amounts of capital or advertise towards accredited investors for larger investments. We know with regulations changing so rapidly as well as the fact that the rules themselves are simply proposed at this point, we would be naive in making sweeping assumptions. The best thing to do would be to keep close tabs on the SEC and industry leaders to find out what the most likely outcome in regards to 4a6 offerings.
What do Section 4(a)(6) issuers need to know about these proposed rules when it comes to certifying that their investors are investing and participating within the rules?
All parties, not just issuers, that are involved in 4a6 offerings must make it a top priority to do their diligence on whomever they do business with. This is an issue however as the SEC demands that issuers provide materials such as fully audited financial reports and extensive information on officers and directors in charge. Companies should not have to waste valuable time simply attempting to stay compliant. It would be much wiser to focus on fundraising and outsourcing compliance related matters to third parties. It will be much easier and secure for companies to rely on safe harbors provided by these third party solutions. The utilization of these solutions refocuses the crowdfunding industry back on the original intent of the JOBS Act – capital creation.
Is Crowdentials going to be submitting a comment letter to the SEC?
Absolutely! The essence of crowdfunding is large groups of people being able to sway an entire industry. Every team member here at Crowdentials is excited to provide their input to move this industry forward. We look forward to being part of this group as we help guide the SEC towards making rules and regulations that create a safe environment for equity crowdfunding.