Congress passed legislation that allows Crowdfunding as part of the JOBS Act (H.R.3606).
To download the bill and its amendments, go to: http://www.govtrack.us/congress/bills/112/hr3606
Official Bill Summary
The following summary was written by the Congressional Research Service, a nonpartisan arm of the Library of Congress. In addition to other laws, EarlyShares operates utilizing both Title II and Title III of the JOBS Act.
Summary as of: 4/05/12--Public Law.
Title II: Access to Capital for Job Creators- (Sec. 201) Directs the SEC to revise its rules governing an exemption from public offering (especially broker or dealer registration) requirements for limited offers and sales of securities without regard to the dollar amount of the offering (Regulation D), so as to provide that a specified prohibition against general solicitation or general advertising does not apply to offers and sales of securities made pursuant to Regulation D if all purchasers of the securities are accredited investors. Requires such rules to require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using methods determined by the SEC.
Requires the SEC to provide that securities sold under this revised exemption may be offered to persons other than qualified institutional buyers, including by means of general solicitation or general advertising, provided that securities are sold only to persons that the seller and any person acting on the seller's behalf reasonably believe is a qualified institutional buyer.
Deems offers and sales exempt from registration requirements under Regulation D not to be public offerings under federal securities laws as a result of general advertising or general solicitation.
Exempts any person meeting certain criteria from broker or dealer registration requirements, with respect to securities offered and sold in compliance with Regulation D, if that person would be subject to such requirements solely because: (1) that person maintains a platform or mechanism that permits the offer, sale, purchase, or negotiation of or with respect to securities, or permits general solicitations, general advertisements, or similar or related activities by their issuers, whether online, in person, or through any other means; (2) that person or any associated person co-invests in such securities; or (3) that person or any associated person provides certain ancillary services with respect to such securities.
Allows such an exemption if that person and each associated person: (1) receives no compensation in connection with the purchase or sale of such security, (2) does not have possession of customer funds or securities in connection with such a purchase or sale, and (3) is not subject to a statutory disqualification.
Title III: Crowdfunding - Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012 or CROWDFUND Act - (Sec. 302) Amends the SA to prescribe conditions under which transactions of $1 million or less involving the offer or sale of securities by an issuer through a broker or funding portal are exempt from certain registration requirements and prohibitions relating to interstate commerce and the mails (crowdfunding exemption).
(Crowdfunding is a method of capital formation by which groups of people pool money, typically composed of very small individual contributions, and often via Internet platforms, to invest in a company or otherwise support an effort by others to accomplish a specific goal.)
Amends the Securities Exchange Act of 1934 (SEA) to define "funding portal" as any person acting as an intermediary in a transaction involving the offer or sale of securities for the account of others, solely pursuant to the crowdfunding exemption under this Act, that does not: (1) offer investment advice or recommendations; (2) solicit purchases, sales, or offers to buy the securities offered or displayed on its website or portal; (3) compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or references on its website or portal; (4) hold, manage, possess, or otherwise handle investor funds or securities; or (5) engage in other activities determined by the Securities and Exchange Commission (SEC).
Amends the SA to set forth qualification requirements for such crowdfunding exemption, including those for intermediaries and issuers.
Sets forth restrictions on sales of such exempt securities.
(Sec. 303) Amends the SEA to authorize the SEC to exempt crowdfunding investors from certain shareholder caps under the Securities Act of 1933.
(Sec. 304) Requires the SEC to exempt funding portals from certain registration requirements, provided that they remain subject to examination by the SEC and a national securities association.
(Sec. 305) Prohibits a state or its political subdivision from enforcing any law or administrative action against a registered funding portal with respect to its business as such. Exempts from such prohibition the examination and enforcement of any law or administrative action of a state in which the principal place of business of a registered funding portal is located, if the law or administrative action is not in addition to or different from SEC requirements for registered funding portals.