May 11, 2012
In regards to Sec. 4(a)(6)(C): the transaction is conducted through a broker or funding portal that complies with the requirements of section 4A(a)
There remains uncertainty in how these investment limits should apply after an investor is able to sell shares when the one year restriction has passed. For example, an investor in year 1 of crowdfunding investing could invest a threshold of $5,000 and then sell their shares for $10,000 in year 2. If this money is directly reinvested in a new offering, does it count as part of the aggregate amount sold for year 2 or will reinvested monies within the system remain exempt from the limitations. If an investor is limited to the amount of their current income, assuming the investor remained at the same limitations in year 2, the investor would need to withdrawal $5,000 from the amount in their account and retain the option of investing the other $5,000.
There is also a provision allowing an investor to sell her shares during the 1 year holding period as long as they are sold back to the issuer, a family member, or to an accredited investor. So an investor could resell shares almost immediately. In the example above, if an investor invests her limit of $5,000 in an offering, the offering is completed and funded, and then a week later she sells her shares for some amount over the $5,000, is she eligible to reinvest in another offering?
This issue raises a secondary concern related to subsequent exchange trading. Subsequent exchange trading as presented refers to buying and selling after restriction. Once shares become unrestricted, there will need to be a liquidity mechanism for buying and selling these securities. At this time, some if not all companies preparing crowdfunding portals are preparing exchanges that provide liquidity so investors can sell their shares. This option will be necessary for issuers and accredited investors in the immediate term and to the general public after one year. It is imperative that the Agency provide general guidance on the restrictions that will apply and how subsequent exchange trading investing will be construed in regards to investor limitations.