House Committees Hold Hearings on Crowdfunding Regulatory Delays One Year After JOBS Act Passess

How Enterprise-Level Business Will Use Crowdfunding
May 1, 2013

Just over a year ago, President Obama signed the JOBS Act into law which legalized equity-based crowdfunding and other entrepreneur-friendly provisions. The bill contained congressionally mandated deadlines for the Securities and Exchange Commission to complete the rule making process after which equity crowdfunding would take effect. However, these deadlines were missed much to the dismay of crowdfunding platforms and business owners everywhere.

The SEC continues to delay the implementation deadlines on sections of the bill that will not only legalize equity-based crowdfunding, but also allow hedge funds to advertise for investors. Late last week, the U.S. House of Representatives Subcommittee on Small Business met to discuss the SEC’s current state of affairs and how it affects the JOBS Act.

The meeting consisted of two panels, including representatives from the SEC on one panel and entrepreneurs, venture capital leaders and economic academic advisors, on the second.

The hearing opened with Committee Chairman Rep. David Schweikert briefly stating the benefits the JOBS Act would provide for Americans, labeling it as one of the greatest bipartisan accomplishments. Setting the tone, he made it clear that the discussion would remain respectful saying, “today’s goal is not to beat up on the SEC.”

However, tension was ever present as SEC representatives Lona Nallengara and John Ramsay were questioned on missing deadlines and expectations for the future of the JOBS Act. Continuous deadline demands by the majority of committee members resulted in vague responses with no firm commitments. The committee’s frustrations were clearly visible when Rep. Blaine Luetkemeye began a lightening round of pointed questions and said, “My concern is that (the JOBS Act) doesn’t seem to have the attention of the SEC.”

The response was a continuous assurance that Chairwoman Mary Jo White was placing the JOBS Act as a first priority. “The commission and staff are moving forward on the various rulemakings,” said Lona Nallengara, the SEC’s Acting Director of Corporation Finance. “We look forward to completing the remaining provisions as soon as practicable.”

The second panel was represented by four influential leaders including Jean Peters, Managing Director of Golden Seeds, testifying on behalf of The Angel Capital Association; William Klehm, President and CEO of Fallbrook Technologies, testifying on behalf of CONNECT; Kevin Rustagi, CEO of Evolutions of Noise, testifying on behalf of SBE Council; and James Angel, Associate Professor of McDonough School of Business, Georgetown University.

The second panel stressed the importance for the SEC to clarify certain clauses in the JOBS Act, such as safe advertising practices and assuring reasonable steps to verify accredited investors.

“This is problematic because the SEC has not provided clarity on what are ‘reasonable steps,’” Peters said. “Many legal experts have advised their clients through alerts not to invest in advertised offerings if there is no safe harbor.”

Momentum has been gaining since the JOBS Act anniversary earlier this month, and members of the House Oversight Subcommittee will be holding another hearing entitled,  “Examining the SEC’s Failure to Implement Title II of the JOBS Act and its Impact on Economic Growthon Wednesday, April 17, 2013 at 2:00 PM EST in 2128 Rayburn HOB. The purpose of this hearing is to discover why there has been little activity on Title II and no movement on Title III although proposed rules were mandated to be released months ago.

The former Chair of the SEC, Mary Schapiro, reportedly squashed the release of the proposed rule due to lobbying by consumer groups in November of 2012. The purpose of releasing a proposed rule is to allow citizens, businesses, other government officials, and consumer groups to comment on the rule and allow for regulators to make changes based on those comments that would appropriately protect citizens and business owners who may engage in crowdfunding.  The hearing will examine why the proposed rule has yet to be released and will hopefully prod the SEC into moving quickly.

As the push for the implementation of the JOBS Act continues, it is necessary now, more than ever, to stay up on the latest developments in the crowdfunding industry. Carol Esposti, CEO of, recently published the 2013 Massolution Crowdfunding Industry Report, which presents key findings and research including which types of crowdfunding found the most success and even projects that the industry will grow to an astounding $5 billion worldwide in 2013. In addition, the report noted crowdfunding’s impressive growth of 81% worldwide last year and the significant progress made by crowdfunding policy makers and regulators on investor protection and education initiatives over the past year.

Esposti stated that, “Crowdfunding has now emerged as a viable, scalable alternative to public and private finance.”

As the SEC prepares to implement legislation that will legalize equity-based crowdfunding, now is the time to gather the information necessary to protect and grow your crowdfunding efforts. Get a copy of Massolution’s report here!