Some of you who read my article on July 1, 2014, entitled “Intrastate Crowdfunding at Risk -Has Intrastate Crowdfunding in Washington State Been Washed Out by NASAA and the SEC?” may have concluded that I was making a mountain out of a mole hill – or perhaps that I was being too harsh on the North American Securities Administrators Association (NASAA).
In that article I raised concerns about recent informal SEC rulemaking which impinged upon the abilities of states to fashion intrastate crowdfunding legislation – particularly states that relied on the federal securities exemption allowing companies to offer and sell securities in their own states without triggering federal registration. My article focused on what I believed was both a narrow and outdated reading by the SEC of what constituted an “intrastate offer” in the day and age of the Internet. According to the SEC, an issuer could not advertise its intrastate offering on the Internet, even with cautionary language indicating that the offer and sale was only made to state residents, as this would be deemed to be an offer outside the targeted state.
Well, I did a little digging since I wrote the article. In doing so I discovered a sad irony. Seems that NASAA in 1996 recognized the need to bring Internet offers in line with state securities regulation. Specifically, NASAA issued a Policy Statement to the effect that simply because an Internet offer was available to its residents on the Internet, a medium which shows no regard for state borders, it would not ipso facto be viewed as an offer in a particular state so long as no sales were made in that state. Seems that the SEC Division of Corporation Finance never got that memo when it wrote its Interpretive Release in 1998 regarding cross-border offerings. But the Internet was still in its infancy, with only 15 million households having access to the Internet in 1998.
A great deal has changed since 1998. So score one for NASAA, who got it right on Internet solicitation as early as 1996, at least when sales were made in somebody else’s state (as in “NIMBY”).
Intrastate Crowdfunding is only the Tip of the Iceberg
And as for molehills, intrastate crowdfunding offerings are only the tip of the iceberg. While the crowdfunding world (im)patiently waits for final regulations in both Title III of the JOBS ACT (crowdfunding), and Title IV (Regulation A+ – or what I refer to as “CrowdfundingPlus,”) there has been an onslaught of lobbying activity in Washington by NASAA against Regulation A+, an exemption from registration allowing offerings up to $50 million, through a short-form SEC registration process. What has incurred the ire of NASAA is the SEC’s proposal that all investors are able to participate in a Regulation A+ offering without the need for a company raising funds to also seek approval in every state in which the offering is made.
And what is not widely known is the intensity of the lobbying efforts brought to bear on the SEC since the Title IV rulemaking comment period ended on March 24, 2014. Indeed, I suspect many, including those at the Commission, are unaware of what NASAA is saying and doing about the JOBS Act outside the earshot of the SEC.
Out of concern that the SEC may accede to the intense lobbying pressure of NASAA as regards Regulation A+ and once again leave this exemption as a useless relic, I submitted a second comment letter to the SEC on July 5 in order to create a more balanced record on behalf of small business.
My July 5, 2014 SEC Comment Letter is embedded below.
You may be surprised at some of the things you will learn – and not widely known – including NASAA’s ranking Angel investors as one of the top threats to small businesses for 2014. Yes, according to NASAA, Angel investors are a threat to small business.
Well, there is more, if you care to read. Read you should, if you care about the need for our economy to create jobs and stimulate innovation. And if you continue to remain silent, you may be complicit in the war against capital formation for small business – and voices louder and more powerful than yours may rule the day.
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Samuel S. Guzik, a recognized authority on the JOBS Act including Regulation D private placements, investment crowdfunding and Regulation A+, writes a regular column, The Crowdfunding Counselor, for Crowdfund Insider. A consultant on matters relating to the JOBS Act, he recently led a Crowdfunding Roundtable in Washington, DC sponsored by the U.S. Small Business Administration Office of Advocacy. He is a corporate and securities attorney and business advisor with the law firm of Guzik & Associates, with more than 30 years of experience. He is admitted to practice before the SEC and in New York and California. Guzik has represented a number of public and privately held businesses, from startup to exit, concentrating in financing startups and emerging growth companies. He also frequent blogger on securities and corporate law issues at The Corporate Securities Lawyer Blog.