Law Prof Urges “Keep it Light, Chairman White”
“Keep it light, Chaiman White,” University of Colorado Law Associate Professor Andrew Schwartz urges the SEC on formulating new regulations for equity crowdfunding. In a law review article entitled “Keep It Light, Chairman White: SEC Rulemaking Under the Crowdfund Act” just published in the Vanderbilt Law Review, Professor Schwartz says the SEC should keep the rules and regulations governing securities crowdfunding “as light and simple as possible.”
Professor Schwartz’s primary concern is that over-regulation would make crowdfunding costly and defeat the very purpose Congress enabled crowdfunding under the Jumpstart Our Business Securities Act, which is to help small businesses raise new capital and create new jobs.
Professor Schwartz pointed out that the JOBS Act already incorporates strong safeguards to protect investors and minimize fraud. The safeguards include the following:
- The JOBS Act establishes a maximum aggregate amount of crowdfund securities an investor may purchase within a year, beginning with a cap of of the greater of $2,000 or 5% of the investor’s annual income or net worth. In other words, an investor cannot “bet the farm” by making crowdfund investments.
- Issuers may not directly sell securities.
- The Act requires intermediaries to educate crowdfund investors about the risk of investing.
- The Act requires intermediaries or brokers to conduct a background check and securities enforcement regulatory history check.
The entire law review article can be viewed here. “If the SEC gives crowdfunding some breathing room, it stands a good chance of bringing new opportunities and economic growth to America,” Professor Schwartz concluded.
Article by A. Brian Dengler. Mr. Dengler is an information technology attorney and instructor at Kent State University.