Final rules on equity crowdfunding – allowing small businesses to use an online crowdfunding portal to sell equity in their business to the general public — has been anxiously awaited ever since Congress passed the JOBS Act of 2012.
Equity crowdfunding of up to $1 million has been seen as a democratization of the startup and small business investment process, allowing small investors to get in on the action once reserved for wealthy investors, banks and Wall Street brokers.
But the U.S. Securities and Exchange Commission, in charge of finalizing the rules contained in the JOBS Act, has been frustratingly slow in accomplishing that task.
In December, the SEC released a rulemaking agenda that indicated plans to finalize the Title III Equity Crowdfunding rules and Title IV A+ rules by October of 2015. With a 60-day rule publishing timeline to play out before the rules finally become law, it could be early 2016 before businesses will be able to use those rules.
The December announcement came 700 days after the Jan. 1, 2013 deadline the law mandated for final crowdfunding rule approval by the SEC.
So why has the final adoption of the rules been so excruciatingly slow?
After all, the passage of the JOBS Act was one of the few bipartisan accomplishments during the first-term of the Obama administration, with legislators on both sides of the aisle lauding its potential to fund the entrepreneurs and ideas that could help revive the nation’s economy after the Great Recession of 2008-2009.
But a number of factors have played a role in slowing down the rules approval process.
The new rules are part of the challenge. Designed to allow small investors to pump more money into the startups and small businesses that are the nation’s economic engines, the rules also had to be written so as to protect those less-savvy, less wealthy investors who could lose their life savings overnight to fraudulent schemes.
So, a fine line to walk, rule-wise.
Then, there has been a conflicting response to the proposed rules from those who would ostensibly benefit from them.
The SEC received more than 500 public comment letters on the proposed rules during a public comment period that ended Feb. 3, 2014. While some supported the proposed rules, many also expressed concern that the new regulations could stifle startups with additional disclosure requirements and high audit fees placing undue burdens on small companies raising capital.
There have also been allegations of foot-dragging on the part of some SEC members who have been perceived as reluctant to get behind the new rules.
Finally, there is the inherent nature of the Securities Exchange Commission itself, which is under no ironclad deadline to approve the rules – only self-imposed deadlines that come and go.
With a national economy on the upswing and a stock market hitting new records almost every week, the pressure has not been that great to push the SEC to move less glacially.
So while frustration continues to build in some quarters to get the final JOBS Act rules enacted, it seems there is only one likely outcome.
The SEC will take its own sweet time to do what it promised to do more than two years ago. And those who would like to share in the potential of the democratization of the securities investment process will simply have to bide their time.