Already months behind schedule, federal regulators charged with establishing the rules to implement new online crowdfunding portals still cannot say when they will issue those guidelines. On Monday, the frustration from entrepreneurs, investors and those trying to build those financing portals was on full display at a forum in Washington.
During the event, David Blass, a chief counsel at the Securities and Exchange Commission, said his team is working diligently to craft regulations required to give the go-ahead to equity crowdfunding sites, which were authorized a year ago as part of the Jumpstart Our Business Startups Act. The law charged the SEC with establishing rules by the end of last year to govern the sites, which will allow entrepreneurs to raise small amounts of money from non-accredited investors.
However, mounting concerns over potential investment fraud and a leadership change at the agency has slowed the process, and on Monday, Blass said he still does not know when the rules will be finalized.
“It just is not possible for me to say a date in which it will or will not be up and running,” he said at the event at a hotel on Capitol Hill, which featured regulators, academics and entrepreneurs and was hosted by Virginia-based CrowdCheck. “I don’t think anybody who gives you a prediction on timing really knows what they’re talking about, unless they’ve been through the process and knows what goes into making an SEC rule final.”
Blass noted that the timeline will depend largely on the priorities of former New York federal prosecutor Mary Jo White—who on the same day, just a few blocks away in Senate, was confirmed as the new head of the Securities and Exchange Commission.
The delays and continued silence from regulators have irritated members of the start-up community, including entrepreneurs and potential investors, many of whom are eager to link up through the new online portals. But equally frustrated are the entrepreneurs actually building the new sites, who jumped at the opportunity when lawmakers authorized crowdfunding but are still waiting to set their new ventures in motion.
Monday’s event took a slightly hostile turn when one such entrepreneur voiced his concerns to the panel, accusing those delaying crowdfunding of a far worse fraud than the types they claim to be trying to prevent.
“There’s another kind of fraud, and that’s when Congress and the president pass and sign a law, and thousands of companies organize according to the principles in that law... but academics and people in consumer groups who disagree with the law make it their mission to prevent the law from going into effect,” said Gregory Simon, chief executive of Poliwogg, a firm that’s building a crowdfunding portal for start-ups in sectors like healthcare and clean energy. “Everyday, I’m reading stories about legitimate businesses that are going to go out of business because of the delay in implementing [this] law.”
“My question is how you can sleep at night,” Simon, who previously held senior positions in the White House and Congress, including chief domestic policy advisor for then-Sen. Al Gore, asked several of the panel members. He later accused them of preventing individuals from simply “investing in their neighbor’s business.”
Mercer Bullard, a professor of securities and finance at the University of Mississippi Law School, fired back in response to Simon’s accusations, arguing that the United States has “the most efficient, fullest securities markets in the world, and they are based on precisely the principles that you’re attacking.”
“If you want a market like we have in a lot of other undeveloped countries, then we’ll follow your lead,” he added. “But if you want a full, competitive market that grows capital and jobs, you want one with investor protections.”
Meanwhile, the pending crowdfunding rules aren’t the only ones on the SEC’s plate at the moment. The agency is expected to finalize new rules lifting the ban on public solicitation of investments sometime this summer. That component was also supposed to be in place by the end of 2012.
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