Power to the People: How the SEC Can Empower the Crowd

R. Kevin Saunders II · 16 Vand. J. Ent. & Tech. 945

Abstract

Crowdfunding emerged as a heralded capital-formation mechanism at a time when capital markets desperately need it, but is it actually viable? Following passage of the JOBS Act and issuance of proposed rules by the SEC, equity crowdfunding will soon become reality. When signing the JOBS Act, President Obama touted it as a means “to increase American job creation and economic growth,” but that will only hold true for Title III, Crowdfunding, if the SEC creates an attractive market for high-quality projects. The SEC’s proposed rules impose a heavy disclosure burden relative to a low maximum offering amount, offering a poor value proposition to aspiring entrepreneurs. Consequently, the proposed crowdfunding market is more likely to attract low quality projects that cannot find funding elsewhere.

This Note contends that reducing disclosure requirements, allowing portals greater discretion to screen projects, and facilitating active crowd participation in selecting high-quality investments would be more consistent with the aims of both the JOBS Act, in particular, and securities regulation, in general. This Note recommends the Commission initially adopt a light regulatory approach, let the market regulate itself where practicable, and impose harsher regulation only where necessary.