SEC Proposal Severely Neuters Crowdfunding ProjectsScarletdown writes "A recent proposal by the Securities and Exchange Commission will, if passed, severely limit the effectiveness of any crowdfunded project that is based in the United States of America.
The proposal has six major features, the first three of which appear to be the most harmful to startups and any private backers who are not already among the wealthy uppercrust.
1: Crowdfunding caps an amount an issuer can raise to $1 million in any 12-month period.
2: Crowdfunding caps the amount a person can invest in all crowdfundings over a 12-month period at 10% of annual income or net worth (incomes of $100,000 or more) or the greater of $2,000 or 5% of annual income or net worth (incomes of less than $100,000).
3: Crowdfunding must be done through a registered broker-dealer or registered “funding portal.” Broker-dealers and funding portals may not solicit investments, offer investment advice or compensate employees based on sales. Traditional investment banks have shown little interest in crowdfunding, leading to speculation that crowdfunding will be facilitated by lesser-known financial institutions with little or no retail investment track record.
This proposal, with the $1,000,000 annual cap, would succeed in ensuring that the old 20th Century models of funding would remain in place for the forseeable future.
It seems like this would immediately put a halt to any new and innovative ventures here in the U.S., and drive them to set up shop overseas. It makes no sense to squash growth and development by making it prohibitively expensive to get a foothold."
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