The JOBS Act from way back in 2012, set forth the Crowdfunding exemption to the securities laws, and required that any Funding Portal that engaged in Crowdfunding registered with the SEC and became a member of FINRA. In late 2015, the SEC came out with the Regulation Crowdfunding Final Rules and forms to permit companies to offer and sell securities through Crowdfunding and to regulate the intermediaries which can sell the crowdfunded securities. The latest Funding Portal rules have been finalized by the SEC and FINRA.
Intermediaries can be either the traditional broker-dealers who register with the SEC using Form BD, or the newly created designation of a “Funding Portal” which has to register with the SEC using Form Funding Portal. Registration for Funding Portals opened on January 29, 2016. SEC Forms here, and note that most require filing a Form ID first.
While a Funding Portal can act as the platform through which crowdfunding securities are advertised and sold, a registered Funding Portal is prohibited from:
- offering investment advice or recommendations;
- soliciting purchases, sales or offers to buy the securities displayed on its platform;
- compensating employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform; or
- holding, managing, possessing or handling investor funds or securities.
If you were planning on incorporating any of the above activities into your business plan to serve as an intermediary for Crowdfunding, then you should register as a broker-dealer and not as a Funding Portal.
A Funding Portal’s registration is good to go on the later of 30 days after the registration is received by the SEC or the date the Funding Portal is approved as a member of FINRA.
On January 29, 2016 the Securities and Exchange Commission approved FINRA’s Funding Portal Rules and Related Forms. A summary of the approval is available in FINRA’s Regulatory Notice 16-06 available here.
Also, and importantly, the JOBS Act preempted any state laws (by amending Section 15(I) of the Exchange Act) so that funding portals and brokers for Crowdfunding issuances will not have to comply with state registration or other requirements applicable to broker-dealers with respect to Crowdfunding activities.