Trust Crowd Intelligence for Crowdfunding, CFIRA Urges FINRA

CFIRA, a leading crowdfund investing coalition, has urged the largest independent securities regulator known as FINRA to embrace  “crowd intelligence” as FINRA develops a self-regulatory scheme for equity crowdfunding.  The Jumpstart Our Business Startups Act, signed into law on April 5, 2012, authorizes small businesses to raise up to $ 1 million per year through online, crowdfunding portals from small investors. Under the JOBS Act, the Securities and Exchange Commission must formulate regulations before crowdfund investments are offered to the public.

In a response to a request for public comment by the Financial Industry Regulatory Association (FINRA), the Crowdfund Intermediary Regulatory Advocates (CFIRA) urged that rules governing “intermediaries” that will handle online, crowdfund investing under the JOBS Act apply a common sense approach with an eye towards lower cost structures in providing crowdfund investment offers. CFIRA’s offered the following suggestions:

  • Requiring fraud prevention and detection mechanisms on crowdfunding portals.
  • Creating a registered Portal-Check to list all intermediaries registered to conduct Crowdfunding similar to the Broker-Check system currently maintained by FINRA.
  • Specifying that the scope of due diligence requirements be reasonable and requisite with the size of Crowdfunding rounds, including (a) a commercially reasonable investigation based upon information obtained from third-party service providers, (b) a check of the issuer’s good-standing in their state of formation, and (c) reliance on issuer disclosures on their PPM and any questionnaires and negative assurances from the issuers’ related parties.


Crowdfunding Intermediary Regulatory Advocates Comments Notice 12-34

  • Allowing portals and issuers to openly advertise certain aspects of the offerings including new listings, successfully funded offerings, and the number of investors in a recently closed offering.
  • Allowing portals to be selective in curating offerings for their constituents whether by industry, location, size, mission, products, and the reputation and history of the investors and officers behind the issuance. Curation rights and selectivity should no be constituted as investing advice.
  • Specifying reasonable investor education requirements.
  • Clarifying that investment limits are related to unaccredited investors and that accredited investors are not subject to the same protections.
  • Clarifying that the burden on establishing the compliance status of any investor be through self-representations and self-warranty, including with respect to any other Crowdfunding investments made and that such investor meets the minimum income requirements required by the Act.
  • Enabling registered broker dealers to address their Crowdfunding activities with the same rules as portal operators.

The entire letter to FINRA is provided below. CFIRA is a coaltion of over one hundred of the crowdfunding industry’s leading platforms and experts comprised of portal CEOs, broker/dealers, industry service providers and attorneys.


The Crowdfund Intermediary Regulatory Advocates

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