'Crowdfunding' Advocates Call on SEC to Finalize Rules

Startup companies say they are ready to raise money directly from private investors whenever regulators finalize rules that authorize such investments.

The Jumpstart Our Businesses Startups Act, a federal law that took effect last year, will help fledgling firms sell stakes to investors whom the companies previously lacked legal authority to solicit.

But the Securities and Exchange Commission has missed deadlines for adopting rules that would govern the marketplace, say advocates for small businesses and entrepreneurs, who massed Tuesday in Washington.

"The capital needs of entrepreneurs remain just as critical as when the JOBS act was signed last April," Karen Kerrigan, chief executive of the Small Business & Entrepreneurship Council, told reporters. "Now, the SEC must take the next step and finalize its rulemakings so the JOBS Act can fulfill its promise of helping fund promising businesses, creating jobs and bringing the economy back to robust levels of growth."

Kerrigan said that she and other proponents of so-called crowdfunding planned to meet with lawmakers and regulators on Tuesday as part of their push.

The JOBS act authorizes small companies that hope to raise less than $1 million to solicit funds online from investors who earn less than $100,000 a year or have a comparable net worth, without having to fulfill registration requirements that entail steps few startups can afford. The act allows eligible investors to invest 5% of their income or $2,000 a year in a startup, which can solicit funds via a website or other funding portal.

The law may offer community banks and other financial start-ups an avenue for attracting investors. "While we haven't taken an official position on crowdfunding, any flexibility that helps banks access the capital markets is useful and important," American Bankers Association spokesman Jeff Sigmund said in an email.

President Obama called the bill "a potential game changer" when he signed it last year. "For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in," the president added.

The law gave the SEC until Dec. 31 to issue rules to establish the process.

Though the SEC has begun the process of rule writing, the agency says it needs more time to finalize the rules. "We've been working very hard on this complex rulemaking effort and very much appreciate the extensive input we've received from potential crowdfunding participants and others," SEC spokesman John Nester said in an email. "We will continue working hard amid a busy rulemaking agenda to get these crowdfunding rules done as soon as possible, and to get them right."

Senator Jeff Merkley (D-Ore.), who sponsored the crowdfunding provision that became part of the JOBS act, has urged the SEC to complete its work expeditiously. "There are a number of complex and controversial provisions in the JOBS act that have the SEC's attention," Jamal Raad, a spokesman for Merkley, told American Banker. "We believe the SEC should move first to complete provisions like crowdfunding that enjoyed bipartisan support and could be accomplished relatively quickly."