How the Government Let Us Down on Crowdfunding -- Today's Outrage
NEW YORK (TheStreet) -- The Securities and Exchange Commission sure loves the big headlines it gets when going after Wall Street, but the agency's foot-dragging over the JOBS Act is just another example of the government letting the rest us down.
And President Obama's nomination of a former federal prosecutor as the next SEC chairman does little to show that he's serious about forcing the agency to implement an important measure that could spur a major economic expansion.
The SEC broke the law by missing its Dec. 31 deadline for finalizing rules that would foster the expansion of small businesses and the creation of jobs. And we might have to wait another year for the Securities and Exchange Commission to do its own job to implement the JOBS Act.
The Jumpstart Our Business Startups Act was signed into law by Obama last April with strong bipartisan support, which is unusual in Washington these days, and underscores the Act's importance at a time when initial public offerings by U.S. companies have slowed and banks are being careful in making loans.
The JOBS Act is meant to spur investment in smaller companies by easing securities registration and reporting requirements, while also opening up fundraising away from traditional markets by allowing entrepreneurs to raise up to $1 million in a 12-month period through crowdfunding.
Funding for small businesses and startup companies that aren't ready to go to the public markets has traditionally been limited to venture capital firms, private equity firms and wealthy individuals known as "accredited investors." The point of crowdfunding is to allow "ordinary" investors to make equity or debit investments in small businesses. This promises a large new source of investment capital for expanding businesses at a smaller cost than equity or debt filing with the SEC.
The SEC was mandated under the JOBS Act to finalize rules to allow crowdfunding by Dec. 31. The Wall Street Journal in December reported that the outgoing SEC chairman had delayed proposing rules to end the ban on general solicitation for investments because of concern over her legacy for protecting investors, and "interference" from consumer groups, concerned that opening up the flood gates for investment could lead to widespread fraud.