Crowdfunding rules missing as SEC deadline nears

Yancey Strickler is confounder of Kickstarter, a leading crowdfunding site. The company would not comment on its meeting with the SEC about rules for the business.
Damon Winter/New York Times/File 2011
Yancey Strickler is confounder of Kickstarter, a leading crowdfunding site. The company would not comment on its meeting with the SEC about rules for the business.

NEW YORK — When the Jobs Act became law in April, supporters proclaimed a new era for small businesses seeking to raise money.

The ‘‘game changer,’’ as President Obama put it, was a provision to allow small companies to ‘‘crowdfund’’ — that is, to sell stock and other securities over the Internet to the public.

‘‘For the first time,’’ the president said, ‘‘ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.’’


But the Securities and Exchange Commission appears certain to miss its end-of-year deadline for issuing regulations. And with the departure of the SEC chairwoman, Mary L. Schapiro, and three of her top deputies — including two who manage the offices writing the regulations — some in the nascent equity crowdfunding industry worry it could be 2014 before their line of business becomes legal.

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The delay has frustrated many crowdfunding backers. The 270 days that Congress gave the SEC to write rules ‘‘is not a suggested timeline; it is a congressional mandate,’’ said Kim Wales, an organizer at Crowdfund Intermediary Regulatory Advocates, an industry lobbying group.

Title III of the Jumpstart Our Business Startups Act creates an exception to the general rule that before a company can sell stock to the public it must register with the SEC, a process of disclosure requiring elaborate and expensive assistance from lawyers, accountants, and investment bankers that most small companies cannot afford. Instead, businesses seeking less than $1 million will be able to raise capital online from small investors. But the law insists on strong investor protections, and as a result, the SEC must iron out numerous issues.

Small businesses are notoriously risky; in essence, the SEC is writing rules for a dangerous game.

‘‘It’s actually a significant job to do the regulations in this area, so it was an unrealistic expectation that the SEC would have it completed by now,’’ said Barbara Roper, director of investor protection for the Consumer Federation of America.


A spokeswoman for Senator Jeff Merkley, an Oregon Democrat who largely wrote the crowdfunding measure, said the SEC was grappling with the more stringent requirements courts had imposed for conducting cost-benefit analyses when writing regulations. This ‘‘has slowed down everything from Dodd-Frank to the Jobs Act,’’ said the spokeswoman, Courtney Warner Crowell.

With data for analyzing equity crowdfunding in short supply, the SEC asked RocketHub and Indiegogo, crowdfunding services, to provide information about their practices. RocketHub complied; Indiegogo did not, said cheief executive Slava Rubin, because it did not want to share trade secrets. Officials also requested help from Kickstarter but neither the agency nor Kickstarter would comment.