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SEC Proposes Much-Anticipated Crowdfunding Rules
On Oct. 23, the U.S. Securities and Exchange Commission (SEC) finally proposed rules to implement the crowdfunding provisions of the Jumpstart Our Business Startups Act of 2012, Pub. L. No. 112-106, '201(a), 126 Stat. 306, 313 (Apr. 5, 2012) (JOBS Act). Crowdfunding is a new and evolving method of raising capital and has largely been successful in providing funding in the nonprofit sector, where it is sometimes referred to as crowdsourcing. Congress established a foundation for crowdfunding through the enactment of the JOBS Act in April 2012 and directed the SEC to adopt rules to implement the registration exemption provided by the statute by Dec. 31, 2012. As a result, these proposed rules from the SEC have been widely anticipated.
At the time the JOBS Act was enacted, the crowdfunding provisions were met with both enthusiasm and criticism. For very early-stage companies, the first round of capital can have a significant impact on the company's future. Companies at this stage are often too small to attract the interest of angel investors, and founders are forced to turn to friends and family for start-up funds. Crowdfunding is intended to enable these small, start-up companies to access capital at low cost. Critics, however, fear that there are insufficient safeguards to protect investors from fraud and the opportunistic scenarios that could be found over the Internet.
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