Below is an article by The Social Media Monthly entitled “Critical Comment Period Issue on
SEC Title III for Crowdfunding”
Critical Comment Period Issue on SEC Title III for Crowdfunding
By: Joy Schoffler, The Social Media Monthly
Jan 22, 2014
As you may know, the comment period for the proposed rules for Title III crowdfunding will be up in a matter of weeks. I wanted to reach out as one of the items within crowdfunding legislation that may cause a problem for entrepreneurs looking for capital and the investors trying to sort deal flow is the prohibition against non-registered broker-dealers having the ability to do Assessments of companies.
The way the proposed rules are written could effectively prevent portals from employing modern search and sort capabilities, which is one of the most important functional necessities in any e-marketplace. A lack of sorting capabilities would essentially eliminate a good deal of the benefits to investors crowdfunding was meant to have.
Below you will find a comment letter written by Judd Hollas of EquityNet that outlines the problem and brings up a solution.
Re: File Number S7-09-13; Securities and Exchange Commission call for comments pertaining to 17 CFR 200, 227, 232, 239, 240 and 249.
Attn: Elizabeth M. Murphy
U.S. Securities and Exchange Commission 100 F Street North East
Washington D.C., 20549-1090
Ladies and Gentlemen:
We appreciate the opportunity to comment on the proposition of new regulation concerning Crowdfunding to implement the requirements of Title III of the Jumpstart Our Business Startups Act as called for by the Securities and Exchange Commission on October 23, 2013.(1)
The purpose of this letter is to:
1) draw attention to the unintended contradiction and ambiguity created by the use of the term assessment as proposed in § 227.402(b)(3)(ii);
2) ask that the drafters correct the use of the phrase objective criteria in § 227.402(b)(3)(ii); and
3) ask that the drafters carve out an exemption in the safe harbor allowing portal user feedback which is user sortable, subject to § 227.402(b)(4), in light of the rewrites proposed to solve the issues posed by points 1 and 2.
The key issue at hand in § 227.402(b)(3)(ii) is the prohibition of investment advice by parties not registered as Investment Advisors in concert with now-existing federal law and rules.(2) The proposed rule, as drafted, appears to be structured to bar portals from creating sorting features for investor users as a mechanism to filter or sort search results based on the advisability of investing in the underlying issuer or its offering, or from sorting based on any derived opinion based on any characteristic of same issuer. While we fully support the SEC’s stringent safeguarding of consumer welfare in the spirit of this section, we wish to draw your attention to important practical issues that result as a consequence of certain word choices and omissions, including the potentially crippling inability for investors to use objective criteria to navigate through thousands of offerings on a platform.