Frequently Asked Questions About Crowdfunding Intermediaries Division of Trading and Markets
May 7, 2012
In these Frequently Asked Questions (FAQs), the Division of Trading and Markets is providing guidance on the implementation of the crowdfunding intermediary provisions of the Jumpstart Our Business Startups Act (JOBS Act). These FAQs are not rules, regulations or statements of the SEC. The SEC has neither approved nor disapproved these FAQs.
The Division may update these questions and answers periodically. In each update, the questions added after publication of the last version will be marked with “MODIFIED” or “NEW.” In addition, the SEC is soliciting public comments on regulatory initiatives under the JOBS Act.
For Further Information Contact: Any of the following at (202) 551-5550: David W. Blass, Chief Counsel, Joseph Furey, Assistant Chief Counsel, Ignacio Sandoval, Special Counsel, Leila Bham, Special Counsel, Timothy White, Special Counsel, or Shaheen Haji, Attorney-Advisor, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-7010.Background
These FAQs address questions about the crowdfunding intermediary provisions in Title III of the JOBS Act.
Crowdfunding issuers. Title III of the JOBS Act amends Section 4 of the Securities Act to create a new exemption for offerings of “crowdfunded” securities. Specifically, the JOBS Act amends Section 4 of the Securities Act to exempt issuers from the requirements of Section 5 of that Act when they offer and sell up to $1 million in securities, provided that individual investments do not exceed certain thresholds and the issuer satisfies other conditions in the JOBS Act, some of which will require rulemaking by the SEC.
One of these conditions is that issuers use the services of an intermediary that is either a broker registered with the SEC or a “funding portal” registered with the SEC.
Funding portals. Title III of the JOBS Act adds new Section 3(h) to the Exchange Act which requires the SEC to exempt, conditionally or unconditionally, an intermediary operating a funding portal from the requirement to register with the SEC as a broker. The intermediary, though, would need to register with the SEC as a funding portal and would be subject to the SEC’s examination, enforcement, and rulemaking authority. The funding portal also must become a member of a national securities association that is registered under Section 15A of the Exchange Act.
A funding portal is defined as a crowdfunding intermediary that does not: (i) offer investment advice or recommendations; (ii) solicit purchases, sales, or offers to buy securities offered or displayed on its website or portal; (iii) compensate employees, agents, or others persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal; (iv) hold, manage, possess, or otherwise handle investor funds or securities; or (v) engage in such other activities as the SEC, by rule, determines appropriate.
The JOBS Act directs the SEC to adopt rules to implement Title III within 270 days of enactment of the Act. The President signed the JOBS Act into law on April 5, 2012.
See on sec.gov