SEC Acting Chair Piwowar and Commissioner Stein Face Off on Regulation Crowdfunding

The SEC Division of Economic and Risk Analysis and the NYU Salomon Center for the Study of Financial Institutions hosted a “dialogue” on Regulation Crowdfunding. The dialogue focused on three aspects of securities-based crowdfunding: the “economic rationale and legal framework; investor protection and capital formation; and the [related] empirical evidence and data.”

SEC Acting Chair Michael S. Piwowar stated that Regulation Crowdfunding “permits retail investors to be solicited to purchase unregistered securities of small private companies.” He asserted that this is a “fundamental alteration of nearly 80 years of U.S. securities law practice.” He also reported a determination by SEC staff:

“To date, 163 U.S. securities-based crowdfunding deals have been initiated, of which 33 have completed their fundraising. Over $10 million has been raised since the regulation went into effect, with most offerings still ongoing.”

Acting Chair Piwowar expressed concern that the final Regulation Crowdfunding requirements might be “too restrictive or too burdensome.” He urged the SEC to “consider whether any further steps should be taken to improve our crowdfunding regulations, including the use of exemptive authority.”

SEC Commissioner Kara M. Stein took a more skeptical view, and urged the SEC to provide “more thought and attention” to Regulation Crowdfunding. Commissioner Stein focused on the role of funding portals, and asked whether registered portals were “appropriately considering the companies and offers hosted on their platforms.” She also questioned whether the SEC should institute uniform standards for funding portals when vetting companies in order to protect investors and facilitate repeat investments.

Lofchie Comment: Commissioner Stein quite rightly raises questions about funding portals. Under the SEC’s crowdfunding rules, funding portals are subject to significant restrictions that effectively prevent them from making any money, and also subject them to significant responsibilities in order to prevent others from losing money. Given those limitations and responsibilities, the most likely sorts to take on the funding portal role might be saints and criminals. Given the way that the world tends to operate, it is not shocking that Commissioner Stein should discover more criminals than saints. If Congress and the SEC genuinely intend for crowdfunding to work, or for funding portals to play a true gatekeeping role, then they must afford those portals some means of making money.

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