U.S. CrowdFunding Bill

[Stephen Gornick]

S.2190 the CROWDFUND Act passed in the Senate this past week.

The next step is for it to be sent to the House to be reconciled with the JOBS Act passed previously and a revised bill passed by both the House and the Senate.  Then President Obama is expected to sign it and it becomes law.  But hold on, then the SEC has 270 days to make the rules for the regulation.   So give it nine months before the unwashed masses will be given the immense privilege of being able to invest $100 into someone else's project.

Here's a snippet I posted in another thread relating what the Crowdfunding bill brings:

In the U.S. a crowdfunding bill passed in the House of Representatives and is currently making its way (slowly) through the Senate.  Some who are familiar with the bill's backers are hoping to see it passed and enacted into law in March of this year.  Similar to how GLBSE works, a crowdfunding bill will allow for the first time in generations the ability for a company to offer equity to the general public.  Current restrictions limit the field of investors (other than friends and family) to only those that qualify as "accredited".

Unfortunately for most solo entrepreneurs and for small startups that are not already generating revenues the crowdfunding law will not help much.  The law, as has been proposed, will still require an expensive intermediary funding portal that would likely not even consider still be too expensive for many of the types of micro startups that GLBSE can accommodate.

As a result, those in the U.S. that list under GLBSE by themselves (as U.S. entities) would likely still be violating securities laws by raising capital from the general public through GLBSE.  

Perhaps at some point (once specific listing and investing requirements are known after the law is passed) there would be the possibility of an intermediary listing with GLBSE companies from its portfolio to a set of investors that it has authorized -- for the purpose of enabling trade between members of the set of investors.  raised.  [i.e., using GLBSE not to raise capital but to use GLBSE's exchange technology, liked a "Second Market" for crowdfunded capital.]  That doesn't do anything to help the would-be entrepreneurs left unserved by the crowdfunding bill though.

It is great to see the competition though.  Just like how Kickstarter and IndigGoGo found a workaround pushed boundaries relating to pre-selling to the rigid securities law hopefully some smart cookies will figure out how to legally use GLBSE for crowdfunding in the U.S.  This exchange will probably be used from the U.S. regardless for the reasons including it serving a great need currently left unmet, and being able to do so by being small enough to fly under the regulators' radar and by operating in a manner that enforcement probably isn't motivated nor prepared to aggressively pursue.

There are many details though -- assuming they remain in the Act and become law.

For instance, if the amount of funds being raised (IPO'd) are under $100K, the latest tax return plus self-certified financials are all that is required for analysis of financial health by the funding portal.  Above that amount and the financials must be reviewed by a public accountant (a "compilation") and above $500K audited financials are required.

The Crowdfunding bill has limits as to how much one can invest.  For instance the maximum investment (added, per-year) in all crowdfunded projects combined for any investor is 5% of the investor's annual income when either that person's income or net worth is under $100K (though regardless of income at least $2K is allowed).

To raise funds, registration with a "funding portal" is required.  The funding portal does background checks, ensures that investors are aware of the risks [which possibly means giving an opinion (or rating) on the project's viability,] verifies that the above maximum investment levels aren't exceeded and manages the money during the raising of funds.  This "portal" function will not be cheap, so most of the types of projects you see on Kickstarter will remain on Kickstarter looking for for donations rather than being able to raise capital instead.

The Crowdfunding bill will not allow IPO'd shares to be sold for the first year after purchase to other investors (except to accredited investors or back to the issuer).  Compare that to GLBSE which has no lockup period once IPOs begin trading.

The raising of funds must hit the target (i.e., be fully funded) otherwise investors can opt to cancel any funds already paid to the portal.  Once fully funded, a 21 day hold occurs before the portal delivers the funds raised.   This is to give additional time to vet the issuer.

There may be restrictions on how the offer is pitched -- so forget sending out a tweet that reads: "Please buy shares in my new project!".  There are restrictions on using an agent or paid campaigner for help in raising funds as well.  On the upside, if you will only be issuing to accredited ("wealthy") investors, you actually will be allowed to pitch yourself at an event for the public now though.

All this is very interesting but nothing was really unexpected.  One exception though was when I learned that there is an advisory council (CAPS Council) that has already been formed and has already been operating to come up with guidelines that these funding portals would follow in vetting issuers who are raising the funds.   I'll post that in the next thread.

[Stephen Gornick]

A "funding portal" that will act as intermediary between crowdfunding investors and crowdfunding issuers is a type of broker.  Crowdfunding is now an industry and there is this group within the industry that has formed to become the industry's governance group.  They've created a panel that came up with a framework that specifies what and how the funding portals will do the work that they do.  This framework is called the Crowdfunding Accreditation for Platform Standards (CAPS).  

The Crowdfunding Act is not signed into law even yet, so the SEC hasn't deemed what rules the funding portals must follow.  CAPS was apparently created though to meet or exceed what those rules from the SEC will likely be requiring.   The creators of CAPS are a governing group called the CAPS Council, and includes key people that helped to guide and lobby for the Crowdfunding Act legislation.  

They've already had eight crowdfunding (funding portal) platforms successfully go through the process to become educated on and accredited in CAPS and are now having another twenty of these funding portals become accredited.

 - http://www.crowdsourcing.org/editorial/crowdfunding-industry-establishes-standards-to-help-prevent-fraud/12670
 - http://www.crowdsourcing.org/caps

[Stephen Gornick]

Now, what I'm curious about is if this changes anything for Bitcoiners.

CAPS exists because "crowdfunding platforms owe fundraisers and investors a high degree of transparency and the ability to facilitate secure transactions to reduce the risk of fraud".

I wonder if a service provider would be able to take much of  the CAPS framework and apply it to a model that works for issuers who wish to use GLBSE (or direct, or other model) to raise funds.  It wouldn't be a CAPS accredited provider but it might parallel CAPS in most areas.

I'm sure there will be other instances where this new crowdfunding method in the U.S. will intertwine with bitcoin-related investment and trading.

[mila]

until nefario started collecting e-mail addresses as part of the registration, it was pretty untraceable who owns shares at glbse. the only link in 1.0 was a keypair and incoming bitcoins.
with 2.0 e-mail is linked to an account and there goes the plausible deny ability.

as non U.S. resident i look forward to the rising supply of shares caused by this regulation. </sarcasm>

thanks for the link.

[Cryptoman]

with 2.0 e-mail is linked to an account and there goes the plausible deny ability.

So why not get an anonymous email account from somewhere like Hushmail?

[hazek]

Stuff like these regulations by the state make my head want to explode. I cannot express in words how pissed I got when I read the OP.

[Stephen Gornick]

So why not get an anonymous email account from somewhere like Hushmail?

I'm presuming this is why:

Could you give me the name of your asset (the ticker symbol) and provide the information below that would allow me to verify your identity.
 
I will need:
picture of your national ID
picture of your passport
picture of your driving licence
 
All the above pictures must be clear and must show a piece of paper with <asset issuer name>  written on it.
 
I will also need you're home phone number, your mobile number, your home address.
 
Some information about your professional life (where you currently work etc.)
 
You must also use your personal Facebook and linked-in profiles to friend these profiles below, so that I may inspect them.
http://uk.linkedin.com/in/glbse
http://www.facebook.com/GLBSEbot

 - http://pastebin.com/HM3PSK74

[finway]

So glbse is asking for IDs, too.

[Jon]

GLBSE is finished. We need blockchains for financial securities.

Right now the current concept is a brain fart.

[rjk]

Atlas, you are a brain fart. stfu

The ID requirement for GLBSE is optional, and is only for those that are offering something, not for buyers. To prevent the scammers that were seen in 1.0, 2.0 offers ID verification which will then mark the account verified. Those that choose not to send ID will still be allowed, but will not be marked trusted. This is my understanding of the changes that Nefario is implementing, and they are positive changes.

[cbeast]

I wonder what lame investments CAPS Council will allow the unwashed masses to invest in? Government has historically demonstrated very poor financial guidance. Actually, it can be perceived as criminal, except it cannot be criminal if it is done by government. I'll stick with real estate, art, and Bitcoin. I am anxious to see what becomes of GLBSE. It may be labeled illegal someday, but having an international perspective that Bitcoin provides, especially with Brain Wallets, will make investing in democratizing enterprises safe from the long arm of the banksters.

[Bitcoin Oz]

I wonder what lame investments CAPS Council will allow the unwashed masses to invest in? Government has historically demonstrated very poor financial guidance. Actually, it can be perceived as criminal, except it cannot be criminal if it is done by government. I'll stick with real estate, art, and Bitcoin. I am anxious to see what becomes of GLBSE. It may be labeled illegal someday, but having an international perspective that Bitcoin provides, especially with Brain Wallets, will make investing in democratizing enterprises safe from the long arm of the banksters.

Im sure they will let you invest unimited funds into the government ie "political donations"

[Satori]

S.2190 the CROWDFUND Act passed in the Senate this past week.

This is good information to know.  Thank you!

So give it nine months before the unwashed masses will be given the immense privilege of being able to invest $100 into someone else's project.

From the angle of your post, you seem to be purposing this information more toward IPOs than Kickstarter sites.  Investment generally, though, is not a privilege that's allotted to us in drips and drabs by people who purport to be our political representatives.

There are many details though -- assuming they remain in the Act and become law.

That's a pretty big assumption.  It will probably remain in the Act, and the Act will get passed.  But people have forgotten these days that just because legislation is passed, it doesn't automatically become law.  Legislation is a paperwork term, a term of bureaucracy.  It refers to the process; are all the papers signed by the right parties?  dated correctly?  handed in on time?  Then it's legal.

But to also be law, it must be valid in law.  That means it must correctly adhere to the proper delegation of authority.  In the U.S., the delegation of authority goes from God -(into man's system of law)-> to the People -> to the political representatives we delegated.  With the Constitution, we delegated certain specific authorities to our representatives.  Anything not specifically delegated remains with the People, or with the various States.

That hasn't stopped any number of politicians drafting all manner of legislation and getting it passed, but it certainly doesn't make it law.  If we remembered that political authority doesn't arbitrarily flow out of a politician's pen, we wouldn't be so concerned when stuff like the blatantly unconstitutional NDAA passed last December for example, with 93 of 100 senators voting in favor of obvious treason.  Because we would all know it was void the moment it was penned, and never could be law.  Nobody would adhere to it as if it were, and we'd have quite a response to politicians who have the temerity to draft this stuff.  But for now, since the People have forgotten the nature of the political structure they built, politicians have been getting away with it with impunity.

On a more practical basis, an increase in legislation limiting crowdfunding will probably lead to a public increase in Kickstarter-like sites on the darknet.  Where the crowds can collectively fund anything they like.  Seems like the natural social response.

Stuff like these regulations by the state make my head want to explode. I cannot express in words how pissed I got when I read the OP.

hazek, I quoted your response because my point above speaks directly to it.

Im sure they will let you invest unimited funds into the government ie "political donations"

It shouldn't be that long before someone creates a Kickstarter/BitCoin for taking down corrupt politicians and CEOs.  Wouldn't take much; a crowdsourced Wiki [that requires people to cite their sources] that also creates a ChipIn-like BitCoin fund to pay the court costs and the attorneys' fees.  Any court-awarded damages could go directly back to the users who invested in that fund, in whatever proportion they invested.  People could actually profit from sorting out all the corruption among corporations and politicians.  I mean, we are in a target-rich environment there.

[hazek]

hazek, I quoted your response because my point above speaks directly to it.

I'm sorry but what good does it do me if something isn't law but gets enforced anyway? Nothing. I'm not pissed at this particular law, I'm pissed at statism in general. I can't stand being treated as a slave.

[Satori]

hazek, I quoted your response because my point above speaks directly to it.

I'm sorry but what good does it do me if something isn't law but gets enforced anyway? Nothing. I'm not pissed at this particular law, I'm pissed at statism in general. I can't stand being treated as a slave.

My point is that the only reason people tolerate it - and therefore allow it to get enforced - is through a lack of knowledge.  By filling that lack, people can sort out society without revolutions or hopeless elections.  It's just a matter of putting back what was lacking - and in some cases, deliberately hidden.

I feel the same way you do.  Perhaps even moreso.  Years ago, I realized that they couldn't do it if nobody paid their paychecks - or at least refused to do so until they shaped up.  I also realized that subsidizing what they do would make me a party to it as well.  For over a decade I've been living off the grid - and unemployable - as part of the choice not to enable them to do what they've been doing.  If everybody did that, the problem would have been solved by now.  People complain that the elections don't work, the courts don't work, and so on... but there's always a choice.

Always.


Be well,

- Satori

[RodeoX]

Thanks for the update on this. I kinda wrote off this legislation and assumed that moneyed interests would crush it. I set up an account at one of the funding portals so that I will be in position. I encourage other bitcoin peers to do the same, we could turn a lot of people on who are interested in money but have not heard of BTC.
It's also a great place to see ideas that are out there and think about who you would invest in directly.   I'm at www.growvc.com , but there are others.

[Matthew N. Wright]

I've been watching this bill since mid 2010 and I have to say, I didn't think they'd pass it. I am speechless. Can't be more proud to be an American living somewhere other than America right now.

[Stephen Gornick]

Nice reply after asking how an investor of a crowdfunded business can sell shares purchased after the 1 year statutory lockup period for IPO'd shares expires:

It is highly, highly, HIGHLY unlikely that any "investor" in a crowdfunding offering will ever be able to sell any of his or her shares, until such time (if any) that the company itself is acquired for cash and therefore has a liquidity event. It would be the height of inadvisability for anyone to regard crowdfunding as a viable means of economic appreciation, or to believe that they will have any liquidity whatsoever once they have put in their money.

- http://www.quora.com/Crowdfunding/How-does-an-investor-of-a-crowdfunded-venture-sell-the-shares

[cbeast]

Lightrider posted this in another thread. It is using bitcoin for crowdfunding. Open Startup becomes an Open Source project  http://www.youtube.com/watch?v=xc8O1VevmcI

[Stephen Gornick]

Janet Tavakoli ... apparently not a fan of the CROWDFUND Act:

This isn't helping small people compete against investment banks.  This is enabling people who want to commit fraud to basically have their way with the general publiic.

 - http://www.youtube.com/watch?&v=wTWKT3pZgT8#t=1157s

To be fair, I think Tavakoli's argument is with the provisions of the JOBS act regarding what it will now allow for "emerging growth companies" (those with up to $1 billion in annual revenue) and she isn't specifically criticizing the CROWDFUND act (for companies raising up to $2 million through crowdfunding).