Below is an article by GlobeSt.com entitled “Will Regulation Slow Crowdfunding’s Progress?”.
Will Regulation Slow Crowdfunding’s Progress?
By: Carrie Rossenfeld, GlobeSt.com
Dec 8, 2014
Potential regulatory changes by the SEC regarding accredited investors, namely Title III, will likely impact real estate crowdfunding—but to what extent? As GlobeSt.com reported earlier this month, Alexander Philips, CEO and CIO of TwinRock Partners, told us, “If Title III is enacted, it could throw open the floodgates for all types and forms of investors including marginally shady, if not totally dishonest ones, who could turn the crowdfunding industry upside down. This regulatory vacuum leaves a large and uneasy legal void that could potentially be a new field of opportunity for less-than-honest crowdfunding sites and the entities they sponsor.”
GlobeSt.com asked other experts in the field about what the regulatory changes could do to crowdfunding and the real estate industry. Here, their responses. And stay tuned for an upcoming feature story in Real Estate Forum on what lies ahead for crowdfunding.
GlobeSt.com: What effect will regulation and oversight for qualifying investors have on how quickly crowdfunding is allowed to progress?
Darren Powderly, CCIM, co-founder and VP of real estate at CrowdStreet Inc.: All professionally run CRE crowdfunding companies take compliance and investor protection very seriously. Best practices are constantly being improved to ensure regulatory compliance, sponsor execution and investor protection. From our perspective, the leading portals are all aligned with a common goal of ensuring the healthy and responsible growth of this nascent industry. At CrowdStreet, we are happy to lead by educating the entire industry on best practices.
Dan Miller, co-founder and president, Fundrise: The regulatory implications, whether they are tightened or loosened, will absolutely impact the pace at which the space progresses and the direction it goes in. Like every other company working with equity crowdfunding, we’re looking forward to the rollout of Title III of the JOBS Act—and to seeing how it can be used to expand access to investment. What’s been so great about the space to date is that hundreds of extremely viable businesses have already been created in the midst of a still-challenging regulatory climate.
Judd Hollas, CEO, EquityNet: It probably won’t have that much of an effect. As the rules stand, only accredited investors can participate in crowdfunding, and an issuer has to take “reasonable measures” to validate that accreditation status. These measures can be as simple as submitting last year’s tax filing or obtaining a letter from the investor’s attorney or CPA stating that he or she is accredited. The rules to qualify a non-accredited investor would likely be just as simple and would not be much of a hindrance for an entrepreneur’s crowdfunding efforts.