Piwowar Concerned SEC Crowdfunding Rules Too Restrictive

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By Andrew Ramonas

Acting SEC Chairman Michael Piwowar Feb. 28 questioned whether rules that allow startups to offer shares over the Internet are too onerous.

Speaking at a Securities and Exchange Commission crowdfunding symposium, Piwowar said the agency should consider using its exemptive authority or taking other action to loosen the regulations. The crowdfunding rules have allowed small businesses to raise as much as $1 million annually by selling shares online since 2016.

“I have concerns as to whether the final rules are too restrictive or too burdensome,” Piwowar said.

The Republican in 2015 was the only commissioner to vote against adopting the rules mandated under the 2012 Jumpstart Our Business Startups Act, saying then the regulations are “full of tricks” and inappropriately restrict wealthy individuals’ investment choices.

Crowdfunded shares are open to all investors, regardless of income or net worth. Individuals with income or net worth of less than $100,000 can only invest up to $5,000 per year, however. People whose income and net worth are more than $100,000 can invest as much as 10 percent of their annual income or net worth, as long as it doesn’t exceed $100,000 in a year.

Based on fundraising websites like Kickstarter.com and Indiegogo.com, the commission’s crowdfunding model is intended for companies that are struggling to get bank loans or venture capital. Businesses would have to provide investors with financial statements and income-tax returns to participate.

A group of 13 funding portals and eight broker-dealers have assisted 156 companies with crowdfunding transactions so far, according to an SEC report released at the conference. Their work has facilitated 163 offerings. Businesses have brought in about $10 million in new capital through 33 of the offerings, the report said.

"[C]rowdfunding is attracting issuers that have not extensively used other private offering exemptions, such as Regulation D, which is otherwise a very popular private offering exemption among similarly sized issuers,” the SEC’s report said. “The initial evidence is consistent with crowdfunding providing a new source of capital for entrepreneurial and small businesses that may not otherwise have had access to capital through alternative capital raising channels.”

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editors responsible for this story: Phyllis Diamond at pdiamond@bna.com; Seth Stern at sstern@bna.com

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