Monday, February 10, 2014
The SEC is taking some flak from crowdfunding proponents for its crowdfunding rules. Sherwood Neiss, one of the early proponents of a crowdfunding exemption, has taken the SEC to task, as has Representative Sam Graves, the chair of the House Committee on Small Business. See also this article.
These critics point out, correctly, that the crowdfunding exemption is too expensive and restrictive. The problem is that the critics are aiming at the wrong target. I’m no SEC apologist; I have criticized its approach to small business and the structure of its exemptions on a number of occasions. But, in this case, it’s not the SEC that deserves the blame. It’s Congress.
Almost everything the critics are concerned about originates in the statute itself, not in the SEC’s attempt to implement the statute. I pointed out the many problems with the JOBS Act’s crowdfunding exemption almost 18 months ago. The unnecessary cost, complexity, and liability issues the critics are currently complaining about are statutory problems.
Yes, the SEC has some discretion to change some of the objectionable provisions, but one should hardly expect the SEC, with no experience whatsoever with crowdfunding, to overrule the express requirements adopted by Congress. If anything, as I have pointed out here and here, the SEC is to be commended for cleaning up some of the problems created by the statute.
The crowdfunding exemption is terribly flawed, but it’s not the SEC’s fault. If you’re looking for someone to blame, Congress is the place to start, particularly the Senate, which is responsible for the substitute language that became the final crowdfunding bill. The crowdfunding exemption needs to be fixed, but it’s Congress that will have to fix it.