Proposed SEC Rules on Crowdfunding Threaten Access to Capital By Locking Out Ordinary Investors
Washington, DC, Feb. 6, 2014 – This week marked the deadline for the Securities and Exchange Commission (SEC) to accept public comments on proposed regulations to permit companies to offer and sell securities through crowdfunding. In submitted comments, Competitive Enterprise Institute Senior Fellow John Berlau argues these proposed rules could result in “costly, paternalistic requirements on crowdfunding that have the effect of keeping the status quo and locking ordinary investors out of startup capital.”
"Tens of thousands of ordinary Americans who crowdfund music, films and other projects are legally barred from getting a share of the project's profits,” said Berlau. “It's time for the SEC to let crowdfunding's people go -- and pursue the opportunity to grow wealthy with what they fund."
The successes of electronic marketplaces from eBay to Kickstarter show that the SEC did not need to “reinvent the wheel,” he said.
“If equity crowdfunding were allowed to exist with minimal government regulation, much online business activity would be similar to what exists now, with new tailoring for equity ventures,” said Berlau. “Local businesses and their communities would also benefit. Instead of going online to find a buyer with $1.2 million, a gas station owner could crowdfund by selling stakes to his regular customers.”
NOTE: The proposed regulations are a result of the Jumpstart Our Business Startups (JOBS) Act, signed by President Obama in 2012, that sought to make it easier for startups, entrepreneurs and small businesses to raise capital from a wide range of potential investors.
> View the CEI public comment