CROWDFUNDING – Funding Portal Registration
The Jumpstart Our Business Startups Act (JOBS Act)—a new law aimed at increasing American job creation and economic growth—contains key provisions relating to securities offered or sold through “crowdfunding.” Under the new law, intermediaries performing Crowdfunding on behalf of issuers must register with the Securities and Exchange Commission (SEC) as a “funding portal” or as a broker and must register with an applicable self-regulatory organization (SRO).
Only brokers, or a new type of regulated entity, called a funding portal, can conduct an offering in reliance on the crowdfunding exemption. A funding portal is defined as a crowdfunding intermediary that does not (1) offer investment advice, (2) solicit sales or offers,(3) pay compensation based on sales of securities, (4) hold or handle investor funds, or (5)engage in other activities that the SEC may prohibit by rule. In other words, a funding portal is limited to facilitating the matching of investors with issuers. Funding portals will still need to register with both the SEC and FINRA and must comply with a host of other requirements relating to filings with the SEC, carrying out and monitoring investor education provisions, and related matters, but funding portals need not register as brokers. The SEC has not yet adopted rules relating to funding portals, but we expect those rules to provide more detail on the nature of funding portals and details about how they will function.