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The SEC’s Proposal on Crowdfunding

downloadNew York (HedgeCo.Net) – The SEC yesterday voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.

“There is a great deal of excitement in the marketplace about the crowdfunding exemption, and I’m pleased that we’re in a position to seek public comment on a proposal to permit crowdfunding,” SEC Chair Mary Jo White said. “We want this market to thrive in a safe manner for investors.”

Under the proposed rules:

  •  A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
  • Investors, over the course of a 12-month period, would be permitted to invest up to:
    • $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.
    • 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000.  During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.

Crowdfunding describes an evolving method of raising capital that has been used outside of the securities arena to raise funds through the Internet for a variety of projects ranging from innovative product ideas to artistic endeavors like movies or music. Title III of the JOBS Act created an exemption under the securities laws so that this type of funding method can be easily used to offer and sell securities as well. The JOBS Act also established the foundation for a regulatory structure for this funding method.

The SEC is seeking public comment on the proposed rules for 90 days.

Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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