Today the long awaited rules for Title III implementation of the JOBS Act have passed. This section of the JOBS Act will allow investors that do not meet the requirements to be an 'accredited investor' to participate in private company offerings. Forbes states "This sets the stage for equity crowdfunding to continue its exponential growth over the next 3-5 years, on top of the existing market for accredited investors."
We're in the comment period now, but that will pass soon enough (only 90 days). I certainly expect to see additional platforms spring up almost overnight and existing platforms may be able to monetize their traffic in new ways. What does this really mean for the liability associated with a platform? We have already seen the SEC inquiring of platforms to make sure they don't run counter to the securities laws that exist and the implementation of Title III will not change this regulatory inquiry process.. It is expected that we will continue to see no action letters being issued to companies and platforms with the occasional demand to change or stop operations. A good legal team and careful execution within the law is important. The offering platforms that will house these opportunities may still need broker dealer licencing or approval from one of the state or federal agencies to operate openly and cleanly within the scope of the law.
Of interest is the issue that a true secondary market for private stock does not yet exist. When this liquidity issue is finally resolved then the distinction between those companies that are private and those that are publicly traded will truly be blurred beyond recognition.
The rules will continue to evolve and we will see case law develop when companies fail and litigation results. Until then, the exposures are unknown. Insurance products exist for the platforms/portals and broker dealers that will be holding out offerings and those companies raising money should consider how they can best protect their financial future through the use of appropriate insurance products.
The Forbes article is really informative and concise. Highly recommended.
Monica M. Minkel, RPLU, MLIS, cyRM, CPLP has been working exclusively with Directors & Officers Liability, Professional Liability, Cyber Liability and related products for nearly 20 years. She started her interest in finance by loaning money to her mom at age 11 (complete with a loan agreement and competitive interest rate). She is passionate about all things in the financial industry and the way technology is changing the way capital markets function.