The Crowdfund Intermediary Regulatory Advocates (CFIRA) recently posted a comment letter on the SEC web site regarding JOBS Act implementation. The comment letter was in direct response to the recommendations provided by the Investor Advisory Committee (IAC) who recently met – reviewing their requests for JOBS Act implementation. CFIRA is a group of industry advocates and participants that have consistently championed the benefits of investment crowdfunding. The IAC is a committee established under the Dodd-Frank Act to advise the SEC.
This specific letter, co-signed by CFIRA board members Scott Purcell and Kim Wales, challenged several of the requests by the IAC – an entity that has not been known for their support of crowdfunding.
The letter is divided up into six different statements tackling the IAC positions. At the beginning of the missive the CFIRA board members quote George Bernard Shaw stating, “The reasonable man adapts himself to the world, the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man”. Of course the allusion is the IAC is very much the unreasonable man attempting to live in the past.
The IAC is lobbying for lowering investor limits while CFIRA aptly notes that even “mom and pop will [not] be chomping at the bit to lose money”. The IAC wants to lock down enforcement of tracking investor limits while CFIRA believes we should rely on representations of investors.
Under the topic of integration – where a 506(c) private placement is “integrated” with Title III retail crowdfunded offerings – CFIRA believes full integration would have a negative effect but side-by-side concurrent offerings are beneficial for the retail investor – thus allowing non accredited investors to participate in larger offerings. Previously smaller investors were barred from these types of securities as they were deemed too unsophisticated.
While the IAC clearly wants to err on the side of investor protection and believe that regulatory entities have a distinct responsibility to shelter people from making bad decisions – this must be balanced with the freedom of an individual to choose to manage their own money. During a meeting of the IAC this past February, one IAC member effectively called crowdfunding a “complete disaster” for investors. During the IAC meeting in April the committee rationally stated “this market can only survive if investors view it as fair and a reasonable chance of profiting”.
With the regulatory process for Title III retail crowdfunding still grinding onward clearly the SEC is struggling to release final rules.
The comment letter from CFIRA is posted below.