The answer to this question is when
its done under §201 of the JOBS Act. On
March 26, almost a full year after the JOBS Act was signed into law, the SEC
issued a no-action letter FundersClub Inc. and FundersClub Management LLC .
(“FundersClub”)
FundersClub
is a venture capital fund adviser. It
manages venture capital funds and operates a website. Once FundersClub has identified start-up
companies, it enters into an agreement with the company to raise a target
amount. This is where the website comes
into play. Once the agreement is reached
with the start-up FundersClub post information provided by the company on its
website. The information is available to
FundersClub members all whom must be accredited investors. Does any of this sound familiar?
FundersClub
was asking the SEC to agree to take no action if it conducted this business
without registering as a broker-dealer under the Securities and Exchange
Act. This is the perfect storm between
the general solicitation provisions and the crowdfunding provisions of the JOBS
Act. When the JOBS Act was first passed,
there was a provision that allowed persons to maintain a website to offer
unregistered shares of companies under Regulation D Rule 506 without being
registered as a broker-dealer. Most
people read the provisions and laughed.
However, some read it and tried to figure out how to use it. The biggest drawback was that the entity
controlling the website could not be compensated for offering the shares. However, they could provide other services.
The
JOBS Act also provided for crowdfunding.
The process by which small companies could raise funds through portals
or broker-dealers. Under the JOBS Act,
the funding portals would be regulated by the SEC and probably FINRA but would
not have the full range of functions available to a broker-dealer.
FundersClub
has taken these two sections of the JOBS Act, combined them and ended up
without having to register as an investment adviser or a broker-dealer.
Neither
the request for no-action nor the no-action letter mention crowdfunding, but in
reality this is crowdfunding for accredited investors.
http://www.sec.gov/divisions/marketreg/mr-noaction/2013/funders-club-032613-15a1.pdf