News of a leadership change at the Securities and Exchange Commission has some experts concerned that entrepreneurs may have to wait even longer for highly anticipated yet already delayed crowdfunding rules.
SEC chairman Mary L. Schapiro announced Monday that she will step down next month, and President Obama plans to elevate Elisse Walter, one of the agency’s Democratic commissioners, to fill the position. Walter can serve through December 2013, by which time the president must nominate a permanent successor, who must then be approved by the Senate.
The process could be slow if there are objections by Republicans — and that could push decisions on new crowdfunding laws even further down the road.
“Schapiro plans to leave her post effective Dec. 14th, which means we can look forward to a lengthy confirmation process for her replacement,” Eric Mack, managing editor of Crowdsourcing.org, wrote following the announcement. “As a result, JOBS Act rulemaking is likely to be put on hold or at least slowed down in the interim.”
The JOBS Act, which Obama signed back in April, gave the SEC until the end of this year to determine how to implement new rules allowing entrepreneurs to raise capital through online crowdfunding platforms. The agency appears to already be behind schedule, as several regulatory questions concerning investor education and fraud protection remain unanswered.
Mack said this latest development may leave entrepreneurs waiting “several months, or perhaps a full year, or perhaps longer” for the SEC crowdfunding rules — and that’s not even the end of the process. The Financial Industry Regulatory Authority (FINRA) must also publish its own standards before equity crowdfunding portals can open to business owners and investors. However, the law set no deadline for FINRA’s rules.
“There’s a lot of work left to be done,” Gregory C. Yadley, partner at Shumaker, Loop & Kendrick in Tampa, Fla. said during a Nov. 15 forum at SEC headquarters in Washington.
The silver lining for crowdfunding hopefuls is that Walter has embraced the mandate set by the JOBS Act and has advocated for a balanced approach when considering investor protections versus the need for improved access to capital. At the Nov. 15 forum, she argued that the two are inherently linked, in that any rules that increase the incidence of fraud would eventually deter investments in young companies; consequently, she said, such rules would fail “not only investors, but small businesses, as well.”
“People often frame this discussion as ‘balancing’ the desire for easier capital formation against the need for investor protection, but I see this as presenting a false choice,” Walter said. “A vital prerequisite to efficient capital formation is a market in which investors have confidence.”