The Jobs Act of 2012: Balancing Fundamental Securities Law Principles with the Demands of the Crowd

Abstract:     
I examine the JOBS Act of 2012, especially its crowdfunding provisions. In Section II., I discuss the main areas of the JOBS Act, specifically crowdfunding, emerging growth companies, changes to the small issues exemption, and the reporting company threshold. I note a strong shift towards deregulation, in contrast with Sarbanes-Oxley (2002) and the Dodd Frank Act (2010). In Section III., I analyze the principles behind the U.S. securities laws, especially the Securities Act of 1933 and the Securities Exchange Act of 1934. The specific policies examined are as follows: investor protection, market stability, and maintaining the integrity of U.S. capital markets. With regards to specific provisions of the JOBS Act, I ask whether the benefits of the JOBS Act, most notably the potential for economic growth, exceed its risks, including an increased risk of fraud and increased market uncertainty. In Section IV., I explain equity-based crowdfunding as a new and unique model for raising capital. I examine elements of the crowdfunding structure, namely a relatively small amount of money raised from a large number of individuals, many of whom are non-accredited. I examine the wisdom of the crowd theory, question the continued need for accreditation requirements, and note the crowd's proclivity towards funding social good projects, with potential or significant positive externalities on the community. I conclude that although the JOBS Act contains a swath of measures limiting government oversight of this new market, these risks are outweighed by the substantial economic benefits that accompany the destruction of market entry barriers to the entrepreneur.

Number of Pages in PDF File: 34

Keywords: crowdfunding, JOBS act, venture capital, securities, regulation

JEL Classification: K22, E00, G24, G30, L51, M13, O38

working papers series