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SEC Sets Limits on Crowdfunding
On Oct. 30, 2015, the U.S. Securities and Exchange Commission (SEC) issued new regulations to complete its work for implementing the sections of the JOBS Act that, for the first time, permit use of the Internet to raise equity financing. These latest regulations are scheduled to go into effect on May 16, 2016.
What do the new regulations mean for entertainment industry companies and individuals seeking to raise capital? The new regulations go along with two prior regulations implementing the JOBS Act: the regulations permitting Internet equity offerings only to accredited investors (a new Rule 506(c)), and regulations amending Regulation A to permit equity offerings of up to $20 million (a “Tier 1 offering”) or up to $50 million (a “Tier 2 offering”). (See the author's coverage of Regulation A, starting on page one of the May 2015 issue of Entertainment Law & Finance, http://bit.ly/1OhWl6f.)
As though crowdfunding is not confusing enough, encompassing the donation model ' such as Kickstarter, Indiegogo, Rockethub and other platforms ' as well as the equity model in which people put money into a project with the hope of receiving it back with a profit, the SEC has elected to call this third round of regulations “Regulation Crowdfunding” (as though the prior two regulations do not also regulate the use of the Internet to raise capital). Consistent with this label by the SEC, this article will refer here to this new set of regulations as “Regulation CF.” Consistent with Title III of the JOBS Act, Regulation CF imposes limits on issuers, investors and platforms using the Internet to raise capital.
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