The Financial Choice Act is a valiant effort to address the profound shortcomings of the Dodd-Frank law. Dodd-Frank has been lambasted as regulatory overreach driven by politicians that really don’t quite understand what they are doing. At worst, Dodd-Frank has institutionalized too big to fail. At a minimum, it has cost consumers millions or billions of dollars. But within the replacement, the Financial Choice Act, there is a portion that impacts Reg CF or retail crowdfunding. Under Subtitle P, there is the “Fix Crowdfunding” section.
While this portion of the bill is an improvement, it falls short of what it could be.
According to the current language, much of the Fix is about investor risk and the need for platforms to warn potential investors that participating in early stage investments is highly speculative. There is also a questionnaire portion requiring funding portals to pose questions to investors so they can demonstrate their understanding of the level of risk. The language also includes the requirement that notices are made available to the states. This is a bit redundant as the states already have access to all the filings posted on EDGAR.
There is a portion that excludes Reg CF investors from the shareholders cap. This is a positive thing for issuers and platforms as it has been cited as a negative for companies looking to raise money from a wide audience.
Now the Financial Choice Act is not void of anything positive for early stage companies in need of growth capital. There is Subtitle M – a Micro Offering safe harbor. In brief, small companies may raise up to $500,000 from investors with a pre-existing relationship with the company. This applies to 35 or fewer purchasers.
There is also a section that clarifies General Solicitation by clarifying public pitch events. Something that should have been addressed eons ago.
While I may be missing a thing or two, the section of the Financial Choice addressing Reg CF is not much of a Fix but more of a disappointment.
See the draft legislation below. Go to page 237 for the Fix Crowdfunding portion.
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