On October 30, the SEC at long long last promulgated final rules for true crowdfunding, a mere three and a half years after receiving instructions from Congress to do just that.  Whether this Federal program will replace other crowdfunding solutions, some of which rely on the intra-State offering exemption and some of which require accredited investor status, remains to be seen.  The Federal program opens investments across state lines to all persons, not just accrediteds.

Today my assistant delivered the 686 page SEC release to my desk, so you will note that granular details are omitted in this post.  Surely lawfirms, including mine, will rush to provide detailed legal alerts as to the restrictions, mechanisms and dollar limitations included in the rule and, in any event, that level of detail is inappropriate for a blog post.  Over time I will try, rather, to suggest how this final rule does, and does not, fit into the capital formation matrix.

Note that the rule is effecting 180 days from publication in the Federal Register, so you will not be seeing deals immediately (the funding portals part of the rule is effective January 29, 2016, to give the portals time to prepare for the deal onslaught).

Many companies  and institutional investors bemoaned the current crowd-funding options as encouraging dumb money.  Since the bar to invest under this definitive Federal scheme is much lower than required accredited investor status (indeed someone earning less than, or having a net worth less than, $100,000 is entitled to invest the greater of 5% of net worth or annual earnings or $2000, making an equity play akin to someone’s budget for lottery tickets), we will be seeing a lot of dumb money if this exemption gets heavy use.

And perhaps a lot of fraud upon the unsophisticated, the very fear that slowed the SEC adoption process as it struggled with the balance between the legislative mandate and the SEC role of public protector.  Democracy in the seed capital market could end up being pretty ugly….