The New Federal Crowdfunding Exemption: Promise Unfulfilled

Securities Regulation Law Journal, Vol. 40, No. 3, Fall 2012

55 Pages Posted: 24 May 2012 Last revised: 18 May 2014

C. Steven Bradford

University of Nebraska College of Law

Date Written: May 24, 2012

Abstract

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.

Keywords: crowdfunding, securities, exemptions, offerings, legislation

JEL Classification: K22

Suggested Citation

Bradford, C. Steven, The New Federal Crowdfunding Exemption: Promise Unfulfilled (May 24, 2012). Securities Regulation Law Journal, Vol. 40, No. 3, Fall 2012. Available at SSRN: https://ssrn.com/abstract=2066088

C. Steven Bradford (Contact Author)

University of Nebraska College of Law ( email )

103 McCollum Hall
P.O. Box 830902
Lincoln, NE 68583-0902
United States
402-472-1241 (Phone)
402-472-5185 (Fax)

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