I’ve written previously about the dangers of using crowdfunding sites to sell equity in your startup. I’m sure to many it seemed like exactly the sort of thing lawyers are known for blowing all out of proportion. Unfortunately, the SEC does not feel the same way.
The SEC brought a cease and desist action against some guys trying to be “creative.” Unfortunately, for them, creativity is frowned upon by securities regulators. Seeing that Pabst was for sale, they pitched, in general terms, the idea of raising $300 million to buy the company. They’d received “pledges” of $200 million but never actually took any money. It’s not even clear that they were trying to actually raise the money and bind anyone other that perhaps soliciting interest.
True, this was before the JOBS and CROWDFUND acts — who has the job in Congress of coming up with tortured titles for statutes to yield satisfying acronyms? — but that’s not the point. The point is that the SEC, as an institution, has been very concerned with the quality of the disclosures made to the public before allowing unaccredited investors to buy securities. The recent statutory language isn’t particularly enlightening in terms of requirements. The only clear statement that matters is that certain offerings will have to provide audited or reviewed financials; I don’t even read that language as clearly indicating that a stricter standard is not permitted. But audited financials isn’t the real hurdle here — it’s the full amount of disclosure that could be required.