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

9 thoughts on “The SEC Goes Into SEC “Quiet Period”

  1. Ever since the idea of crowdfunding became reality, I’ve seen many wonderful and ingenious projects come alive, thanks to the diligence of the project leaders and the enthusiasm of the average Joe investors. Like the internet, crowdfund gives the average person an opportunity to do something incredible with the help of fellow dreamers. People should talk more about this to their friends, family, and co-workers. They should spread the news and make sure the SEC can never change the true concept of crowdfunding.

  2. I’m guessing by the end of the whole debate we’ll have 2000 pages of regulation that handcuffs every starter businesses and investors who are willing to invest in those businesses. The big boys are not going to sit and watch while the average folks join forces to gather big ideas and achieve big things.

  3. So I guess they mean to drag this on for as long as they can and eventually add many restrictions at around 2014 when things settle down a little bit and they have a better idea where crowdfunding is headed. One sure thing is one way or another the small guys are screwed regardless of what happens.

  4. We need more government intervention in regulating the way the multinational corporations and the banking cartels do business. The last place we need the government to put its nose in is in crowdfunding or in small businesses. Our country’s making it impossible for individuals and small businesses to be able to compete, thrive, and come ahead. Any nation that suppresses the ingenuity of brilliant individuals is doomed to fail and I truly fear for our future in this once great nation.

  5. SEC is a joke that had its hands on every major fraud in American history since its inception and we’re expecting this joke of a federal agency to create the rules for crowd source funding? Am I being too pessimistic for not hoping anything positive to come out of this? Or am I being realistic about it?

  6. Dang, that’s a pretty high bar to be an “accredited investor.” I don’t have a liquid net worth of a million, nor do I make $200k or more a year. I’m not sure I understand why we need this distinction. Would “accredited investors” get more favorable or less favorable treatment when it comes to things like crowd-souring IPOs?

    • When crowdfunding a literal IPO, like IPO Village, you do not need to discriminate at all… no difference between accredited and non-accredited

  7. It is amazing how many more restrictions are going to be put on the little guys and how all the rich people find the loop holes to get all of the money. If we are to turn this economy around we also need more flexibility for the middle class.

  8. I don’t think we need government regulation because it reduces our freedom of free enterprise.It is not the governments responsibility to run our lives with our businesses, but it is our freedom to build it the way we want.

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