NASAA says “The (blue) Sky is Falling”

According to the North American Securities Administrators Association (NASAA), the “blue sky” laws which allow states to oversee securities and brokers is a good thing (for their dues).

NASA, the National Aeronautics and Space Administration, and not to be confused with NASAA, said blue sky is merely a refraction of visible light through the atmosphere. NASA agreed blue sky is a very good thing as it allows people to breathe.

The financial term “bNASAA and Crowdfundinglue sky” law dates back to the turn of the 20th century when a judge said speculative financial schemes had no more substance than “blue sky.”

Now, NASAA is telling the world at large, “THE SKY IS FALLING!” Indeed, large chunks of the ether are plummeting downward at record speeds these days, threatening to take out the NASAA in a monster storm of fresh air.

NASAA points to a recent “analysis” of Internet domain names in the US and Canada. Among other things, this study found “nearly 8,800 domains with ‘crowdfunding’ in their name as of Nov. 30, up from fewer than 900 at the beginning of the year.”

Even more worrying to the confederacy of securities regulators, “2,000 (of the websites) contained content, more than 3,700 had no content and more than 3,000 appeared to be ‘parked’ and serving as placeholders to reserve a domain name for later use or sale.”

This clearly points to an impending collapse of the blue sky. Exactly how the NASAA will cope with this injection of fresh oxygen remains to be seen, but some privately speculate an increase in brain function which will allow the NASAA to become rational.

Why is the sky falling? The JOBS Act, at least according to the NASAA. The NASAA is reacting to the sharp increase in domain registration as if this is something entirely unique in the history of government, laws and market reaction to the government. “Of the domains with ‘crowdfunding’ in their name, about 6,800 have appeared since April 2012, when the JOBS Act was signed into law,” the NASAA report states.

DUCK! Here comes another breeze!

A quick look at the financial history of the markets in the United States shows any time the government does something to the marketplace, people react. Since JOBS is supposed to ease the rules on investing in small companies and crowdfunding will be an integral part of this, a sharp upswing in crowdfunding-named websites comes as a surprise only to the NASAA. By their reasoning, the blue sky is indeed falling because NASAA doesn’t understand the crowdfunding marketplace.

Anything that is not understood has to be bad, of course.

In a related matter, InvestmentNews reports “Crowd funding takes hit in Massachusetts” [sic]. Massachusetts, official slogan “We never met a tax we didn’t like and try to implement,” has filed charges against three out-of-state residents in two different companies. The state complains fraud was committed by the three people.

InvestmentNews, relying on the same logic that the NASAA uses when complaining about being clobbered by a breeze, says this is solid evidence crowdfunding is under attack in the Land of the Kennedys.

By the very definition, crowdfunding requires a crowd, not one or two people.

The SEC Goes Into SEC “Quiet Period”

In it’s continuing effort to make sure small businesses do not get all the support they need from non government sources, the Securities and Exchange Commission (SEC) announced today it will continue to delay creating rules for crowd source funding.

The federal JOBS (Jumpstart Our Business Startups) Act, passed and approved in April, requires the SEC to come up with rules governing crowdfunding. With the response time Americans have come expect from the Federal Emergency Management Agency, the SEC moved immediately to attend to other pressing matters, such as where the board of directors should have their business clothes dry cleaned.

The SEC has until 2014 to create and implement the rules. The federal health care mandate is supposed to be fully implemented in 2014. Perhaps the two will be merged to create a new class of “too small to fail” businesses which will become eligible for government buyouts.

SEC Chairman Mary L. Schapiro, who must believe SEC actually stands for South Eastern Conference, is also taking a very NCAA approach to the rule making process. Judging from the actions so far, big business is being treated like the very largest universities which only do something wrong after it’s been in the media for six weeks. Small businesses, like the small colleges under the NCAA umbrella, are ignored unless they do something to upset the big players.

To that end, the SEC announced Aug. 31 it would create classes of investors for crowdfunding. In an effort to support the valuable pulp wood tree farming lobby, the proposed rules also promised a different set of regulations for each investors. The amount of paper expected in the ensuing rules creation process drove pulp wood prices up and another 500 acres of rain forest was immediately leveled.

Writing in Venture Beat, Jason Best and Sherwood Neiss also tackled the thorny issue “general solicitation rules.” For the past 78 years, the SEC has been charged with making sure insider trading does not happen, and what a sterling record they have in that regard. The list of people charged with and convicted of insider trading over the past decade or so is certainly into the 10s of people.

Best & Niess dare to suggest the SEC lift the ban on general solicitation in crowdfunding. By offering this idea, they will be the next target of an SEC investigation and possibly be suspended from playing in any post-season bowls for the next five years. They may also get a finger viciously wagged in their face.

The duo also dares to bring up the idea of “accredited investor.” Federal law is unbelievably clear on this one. An “accredited investor” has a liquid net worth of more than $1 million or earns more than $200,000 a year. Really. That’s it. We’re not kidding.

This goes right back to the different classes of investors and the rules which will govern each class. The SEC suggests an “accredited investor” may vary depending on what, how, why, where, when and with whom an investment is made and whether or not it involved Las Vegas Showgirls , a bulk order of ostrich feathers, a jar of peach preserves and a Weedeater. It should now be blindingly obvious the SEC is fulfilling its role of obfuscation full speed ahead and damn the small businesses.

Meanwhile, a new crop of Philadelphia lawyers is sitting on the sidelines watching the SEC call plays and biding their time until they can enter the fray and sue anything that even looks like an investment, investor, small business or a Las Vegas Showgirl holding peach-covered ostrich feathers.

In this never-ending dance of rule making, the only thing that is certain is: LAWYERS WIN!

How all this will affect the future of crowdfunding and small business startup has yet to be determined. However, crowdfunding continues to roar ahead, displaying the kind of determination and grit that leads so many people to start small businesses and succeed despite government efforts to thwart their efforts. Except we mean help.

by Ben Baker