April 11, 2014
James Lee Vann, Private Citizen
Comments on Regulation Crowdfunding under the Securities Act of 1933 and the
Securities Exchange Act of 1934 to implement the requirements of Title III of the
Jumpstart Our Business Startups Act
11 April 2014
As a private citizen I have reviewed the Commissions proposed rules for Crowdfunding and I find the proposed rules, on the whole, to be reasonable and well structured. I have also reviewed several related existing regulations in order to better understand how the proposed regulations would interact, and I provide some thought on the proposed rules below.
I urge the Commission to be wary of third party service providers and their lobbyists attempting to add cruft to the regulations in order to enrich their own (and their clients) pockets.
Thank you for your careful consideration
Regarding Question 6:
Investors should be required to calculate Income and/or Net Worth only if they are investing more than $2,000, or the minimum limit. Only investors seeking to invest more than the minimum limit should be required to provide /calculate their limit. It makes no sense and would be unnecessary to place further requirements on someone seeking to invest only up to $2,000, only once they meet this limit should they be required to do so. Requiring these further calculations would unnecessarily impede investors from "getting their feet wet" in the crowdfunding marketplace.
Regarding Question 7:
The SEC should clarify that a husband and wife can invest a limit of $4,000 in aggregate without further calculations.
Regarding Question 8:
The Issuer should be able to rely upon the intermediary. However, the intermediary should be required to disclose, during each transaction at a minimum, what the investors aggregate limits are and how much the investor has invested within the last 12 months on the intermediary's platform. The intermediary should also be required to make it clear that the aggregate limits apply across all such platforms, not just their own. The Intermediary should not have to obtain any written representation as to how much has been invested with other platforms, but at a maximum should be required to provide an online acknowledgement at each transaction that the investor has not exceeded their limits.
Regarding Question 9:
Institutional and Accredited investors should not be subject to limits, and investments from these investors should not count towards the 1,000,000 maximum funding. This would make it easier for small businesses to use one platform to receive funding from multiple classes of investors.
Regarding Question 12:
If the SEC chooses to limit issuers to one intermediary, the limit should only apply to simultaneous offerings- in other words, if an issuer could have an offering on one platform that raises $100,000, and once that offering closes, they could do another one on another platform for any amount less than the $900,000 (Or the aggregate limit less amount already raised).
The concern to limiting issuers to one platform is that it would limit competition amongst platforms.
In regards to question 17:
An issuer should be given a generous grace period to correct deficient filings before any adverse actions are taken by the SEC.
In regards to question 22:
If an issuer has more than 50% of its investors indicate through the platform that their primary language is a language other than English, then issuers should have the option providing their filings in that language.
A platform should have the option of having language specific offerings, wherein all disclosures and filings would be provided only in a specific language, and all investors would be required to indicate that they are fluent in the language of the offering, to the extent that they can understand the disclosures and filings.
Some businesses may not have a website address, so this information should be optional, and not required, OR, required only if the business has a website address.
While I am in favor of all businesses having a website, what benefit would requiring them to have one provide towards regulatory goals?
Regarding Question 118:
Q. Are there other entities considering applying to become registered national securities associations?
A. After visiting the FINRA website and spending a few minutes reading their information, I pray to God that someone will. What a nightmare
No, the act is clear that membership is only required in one national securities association. Duplication is unnecessary.
Yes, but I don't know what at this time. Hopefully other commentors will have good ideas.
The national securities associations should create these requirements if they are determined necessary.
It seems that most intermediaries plan to charge a percentage of the amount raised. This could be interpreted as a financial interest- an economic interest, and the SEC should clarify if this is allowed or not.
The proposed rules are reasonable, and sufficient at this time. The Commission should avoid the attempts by third parties to specify their services as a requirement. These third parties would add substantial cost and, in many cases, worse, time to the process- while providing little in return.
Q: Should we specify the steps that an intermediary must take in obtaining
background and securities enforcement regulatory history checks on the issuer
and its officers, directors (or any person occupying a similar status or
performing a similar function) and 20 Percent Beneficial Owners?
A: No. Intermediary's should be able to create their own fraud evaluation systems. This will allow more competition and more innovation.
No, but intermediary's should be required to disclose to a potential issuer when they use information from a third party to deny the issuer, similar to the way companies that rely upon credit reports are currently required to disclose this fact.
No- future technologies may change, and intermediary's should be allowed to use whatever means, including their own platforms, is appropriate.
It would be more appropriate to allow the intermediaries to determine whether or not unregistered members of the public can post. Some intermediaries may choose to use a third party registration system for discussions, others may come up with unique systems that have not yet been deployed on the Internet.
Some intermediaries may offer multiple forums- those for people who have committed to investing, those who are registered users, and a third forum for anonymous comments, for example.
The SEC should not stifle this innovation.
Yes- Credit Unions are similarly regulated as banks and are a suitable substitute.
No, a capital requirement would unnecessarily restrict competition.
Currently, the Securities Exchange Act of 1934 states "A registered securities association shall deny membership to any person who is not a registered broker or dealer"
Thus, a funding portal not registered as a "broker or dealer" as allowed by the proposed rules, would also not be allowed to register with ANY registered securities association, including FINRA, by law. But membership in a registered securities association is required by law for funding portals.
The Commission should clarify this perceived contradiction.
No, funding portals should not be burdened with Chapter X of Title 31. Congress intended a low-friction, affordable fundraising platform. Chapter X requirements would be overly burdensome.
Funding portals do not, by law, handle any money. The banks or other financial institutions that the SEC may allow to handle the money are already obligated to follow Chapter X, so it is unnecessary duplication.
As stated previously, I do not think that Chapter X requirements should apply to funding portals. Funding portals do not handle any money, and are required under the proposed rules to use a financial institution which would be required to follow Chapter X record keeping requirements, thus requiring a funding portal to do so is unnecessarily duplicative.
The Commission should also specify data retention periods- would funding portals be required to keep this data forever? What if they go out of business? Would they then be required to provide copies of all of their data to the Commission?