Subject: File No. JOBS Act Title III
From: Anthony D Edwards, Esquire
Affiliation: Founder, Crowdfunding Offerings, Ltd

May 11, 2012

In regards to Sec. 4A(b)(2): not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker

The intent of this provision is not clear. First, the issuer is in fact advertising the terms of its offering on a public platform operated by a broker/dealer or a funding portal. According to this provision, it can then only produce notices that direct investors to the funding portal or broker/dealer. Unclear is what constitutes a notice for these purposes and specifically what terms of the offering cannot be advertised other than in such a notice. Also, a definition for what constitutes advertising for these purposes is required in the rules.

Further, this provision is contrary to what makes a successful crowdfunding campaign. It is well settled in the crowdfunding arena that the personal networking efforts of what would be the issuer in this case through social and business networking contacts, including friends, family, and employees is the key to getting the word out to the crowd. People naturally follow the crowd so the successful crowd funder creates the initial interest that ultimately attracts the crowd and results in a successful funding campaign.

Issuers should be able to promote their offerings as long as investors register with the intermediary and participate in the offering through that intermediary. The reality is that nothing in this law prevents a potential investor from contacting the issuer outside of the platform on which the offering is listed to discuss the terms of the offering. Potentially, an issuer could mention to a colleague at work what he is doing, discuss the details and terms of the offering to generate the interest, then direct the person to the appropriate funding portal or broker platform to register and invest. Is it advertising if an issuer prints business cards or flyers with the same thumbnail description of the offering that appears on the broker platform or the funding portal for the unregistered public to view? These thumbnail sketches of offerings will be available for the unregistered public to see so there should be no prohibition of an issuer promoting the same thing on his own behalf.

In regards to Sec. 4A(b)(3): not compensate or commit to compensate, directly or indirectly, any person to promote its offerings through communication channels provided by a broker or funding portal, without taking such steps as the Commission shall, by rule, require to ensure that such person clearly discloses the receipt, past or prospective, of such compensation, upon each instance of such promotional communication

It is unclear precisely what this provision attempts to prohibit or protect. This appears to refer to communication channels established by a broker or funding portal to facilitate communication between investors and issuers. This could be a forum or a blog for example. So issuers could not pay any person to promote their offerings through these channels. Investors can communicate with each other regarding an offering and can promote offerings to one another. Potential investors who in fact might be investment advisors could promote offerings to others through these channels as long as there is no compensation involved, directly or indirectly. And if there is compensation involved, there must be a disclosure made that the person is being paid to promote or recommend a particular offering.

This might also be aimed at paid advertising by the issuer on the broker platform or funding portal that would drive investors to the issuers offering and potentially sway or influence investors with information outside of that in the offering itself such as an endorsement of some kind by an investment professional or a celebrity. Again this involves undefined compensation. What constitutes direct and indirect compensation, and if no compensation is involved, is it acceptable to promote offerings through advertising? What if a celebrity who is a friend, or who has some outside interest in the success of a particular offering chooses to pay for advertising on a broker platform or funding portal?

In regards to Sec. 4A(b)(4): not less than annually, file with the Commission and provide to investors reports of the results of operations and financial statements of the issuer, as the Commission shall, by rule, determine appropriate, subject to such exceptions and termination dates as the Commission may establish, by rule

Depending on the exceptions and termination dates the Commission imposes here, this seems to be difficult to enforce and it is unclear who would do the enforcing. This provision seems to presume the success of every business that raises capital through crowdfunding and that they will continue to file annual reports with the Commission until some specified time. This could be the point that the business has repurchased all its shares from investors for example. The most obvious problem arises when a business has a successful offering, raises the needed capital, and then subsequently goes out of business the business fails. Will a statement of business closure be filed? What if it is not filed?

Can this be done by funding portals or brokers for a fee after an offering has been funded and closed?

In regards to Sec. 4A(g): RULE OF CONSTRUCTION.—Nothing in this section or section 4(6) shall be construed as preventing an issuer from raising capital through methods not described under section 4(6)

This probably warrants some clarification. The methods described under section 4(6) involve transactions involving the offer or sale of securities by an issuer (including all entities controlled by or under common control with the issuer) so this says essentially that an issuer can raise capital by other methods. I assume those would be the usual methods today friends and family, donation crowdfunding, gifts, grants, loans, etc., essentially any way BUT selling securities.