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D.C.'s crowdfunding proposal draws only two comments. Fundrise is for it, by the way.

posted Sep 19, 2014, 1:28 AM by J Shaw
The public comment period for the FCC's proposed open Internet rules came to a close this week, drawing some 3.7 million comments. Meanwhile, another regulatory proposal in D.C. has wrapped up its comment window with barely a peep. D.C.'s proposed framework for "intrastate" crowdfunding received two (2) comments.

No, that's not a fair comparison. Net neutrality is a national issue with far-reaching implications for anyone who uses the Internet. Equity-based intrastate crowdfunding is a deeply-in-the-weeds tweak to a local securities regulation, somewhat of a stop-gap measure until the Securities and Exchange Commission moves on national JOBS Act crowdfunding. But the lack of commentary on the latter issue highlights a major challenge for community-based crowdfunding in the District. That is, getting people to pay attention.

Here's the guts of D.C.'s proposal: Equity crowdfunding for non-wealthy (non-accredited) investors isn't allowed in the District yet. Under the proposed rules, D.C.-based businesses would be able to raise up to $2 million by selling shares to D.C.-based backers (that's where the "intrastate" part comes from), with the accounting and financial disclosure requirements scaling upward as a businesses approaches that limit.

Weighing in on the proposal were D.C.-based real estate crowdfunding platform Fundrise and the Financial Services Institute, also based in the District.

Fundrise, writing in support, praised the measure as "striking the appropriate balance between lessening the regulatory burdens applicable to small businesses seeking to raise capital from their local communities, and providing adequate investor protections."

The Financial Services Institute, which represents financial advisors and broker dealers, was much more critical in its letter, worrying "investors may not clearly understand the risks associated with crowdfunding and may involve firms and advisors who are not participating in crowdfunding." Most of the group's membership have no interesting in being involved with crowdfunding "in any fashion."

The letter puts forth this hypothetical: "For example, an investor interested in investing in a crowdfunding venture may approach their financial advisor with directions to liquidate some of their existing investments and tell their advisor they plan to invest the money in a crowdfunding venture. If the client later loses their investment in the crowdfunding venture, they may then place blame on their financial advisor for failing to advise them of the risks or for failing to advise them against investing."

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