The New Federal Crowdfunding Exemption: Promise Unfulfilled
C. Steven Bradford
University of Nebraska College of Law
May 24, 2012
Securities Regulation Law Journal, Vol. 40, No. 3, Fall 2012
On April 5, 2012, President Barack Obama signed into law a new federal securities law exemption for crowdfunded securities offerings. Crowdfunding — the use of the Internet to raise small amounts of money from a large number of contributors — has become incredibly popular outside the securities context. But the use of crowdfunding to sell securities has been stymied by federal securities regulation. Securities Act registration is simply too expensive for small, crowdfunded offerings, and, until now, none of the registration exemptions fit crowdfunding well. Moreover, the web sites that facilitate crowdfunding could be considered brokers if they hosted securities offerings, imposing additional regulatory costs.
The new crowdfunding exemption attempts to resolve both of those regulatory problems — by exempting crowdfunded offerings from the registration requirement of the Securities Act and by providing that crowdfunding sites that meet certain requirements will not be treated as brokers. However, the new exemption imposes substantial regulatory costs of its own and, therefore, will not be the panacea crowdfunding supporters hoped for. The regulatory cost of selling securities through crowdfunding may still be too high.
This article analyzes the requirements of the new crowdfunding exemption and discusses its flaws.
Number of Pages in PDF File: 55
Keywords: crowdfunding, securities, exemptions, offerings, legislation
JEL Classification: K22Accepted Paper Series
Date posted: May 24, 2012 ; Last revised: September 16, 2012
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