Has Intrastate Crowdfunding in Washington State Been Washed Out by NASAA and the SEC?On May 5, 2014, I published an article in Crowdfund Insider highlighting recent informal“rulemaking” at the SEC Division of Corporation Finance, which in my opinion quietly dampened the efforts of three states to implement their own brand of intrastate crowdfunding: Kansas, Georgia, and most recently, Washington State.
However, on April 10, 2014, the SEC Division of Corporation Finance, the same division at the SEC charged with implementing Title III (crowdfunding) legislation and Title IV (Regulation A+) under the JOBS Act, cut the heart out of three states’ intrastate crowdfunding initiatives. The most recent victim – Washington State – whose legislature proudly enacted its own intrastate crowdfunding legislation in March 2014.
The SEC ruling at issue, C&DI 141.05. As Joe Wallin pointed out:
In fact, under the SEC ruling, an issuer utilizing the new Washington State exemption cannot evenmention it is conducting fundraising on any part of its website accessible to the general public.
So while the U.S. Department of Justice is officially looking the other way while Washington State mom and pop retail businesses openly dispense marijuana to its residents, no Washington State business operating within the newly enacted Washington State crowdfunding statute can openly offer its securities to the public via the Internet – at least not without incurring the ire of the SEC Division of Corporation Finance. Something is wrong with this picture. At a time when the investment crowdfunding world patiently awaits the SEC’s federal crowdfunding rules, one might ask: Why is it that Washington State residents can puff away on marijuana to their hearts’ content, in violation of federal law, while at the same time the SEC Division of Corporation Finance is putting a muzzle on Washington State’s entrepreneurs who seek to do no more than to use the Internet to reach out their residents for needed working capital? Seems to me that being“laid back” has a higher priority at some quarters in Washington, D.C. than being “laid off.” CrowdFunding marketing Time for a Step Forward at the SEC for Crowdfunding in the Internet Age – Not a Step Backwards
The last time that the Staff of the Division of Corporation Finance visited the issue of the utilization of the Internet in cross-border transactions, and espoused a restrictive view which parallels the view adopted in April 2014, was in 1998. Significantly, however, in 1998 the Staff noted that this restrictive policy on utilization of the Internet to solicit offers and sales would berevisited in the future – with a view towards expanding the ability of an issuer to broadcast the availability of an offering in an offer with geographical limitations: In the context of broader Securities Act reform, we have been considering whether the current general solicitation and other offering communications restrictions on issuers and other offering participants should be modified to create greater flexibility. To the extent that we reform those restrictions on offering communications in the future, we also will consider the implications of those changes for . . . Internet offerings” Congress finally spoke in the affirmative on the expanded use of general solicitation in unregistered offerings in 2012, allowing the use of general solicitation in private placements to accredited investors, whether on or off the Internet. So one would have thought that 16 years after this change in policy was suggested by the Division of Corporation Finance, the Staff at the Division of Corporation Finance would put pen to paper – allowing capital starved small businesses to use the Internet to reach out to prospective investors in intrastate offerings. Yet at exactly the same time when the hoped for change in policy by the SEC would have allowed the Washington State legislature to have its way – with intrastate crowdfunding – by allowing issuers to solicit investors on the Internet – the SEC publicly stood its ground on an outmoded 16 year old policy.CrowdFunding advertizing Why is the SEC Division of Corporation Finance Quietly Stepping on State Crowdfunding Legislation?So the question is why did this “C & DI” come out when it did, on April 10, 2014, at a time when the SEC is by all accounts overwhelmed with rulemaking tasks and understaffed – witness the 2+ year delay in implementing federal investment crowdfunding? And just in the knick of time to stop the Washington State legislature dead in its tracks? Thus far, the answer to this question remains unknown – as this informal rulemaking by the Division of Corporation Finance falls outside the normally transparent formal rulemaking SEC rulemaking procedures. But for me, this gratuitous informal SEC rulemaking raises some red flags that do not bode well for small business, at least at the SEC. What has Changed at the SEC in 2014?
And it is not likely that Mr. Fleming was a big fan of the 2011 Kansas crowdfunding exemption – at least not after, according to public reports, he was unceremoniously dismissed by then Kansas Securities Commissioner, Aaron Jack, the architect of the Kansas intrastate exemption. Washington State Comes to Washington – Courtesy of NASAAAnd then, something else to think about. William Beatty, the chief securities administrator for the State of Washington, and President-Elect of NASAA, was a regular visitor to Washington, D.C. in the Spring of 2014. Perhaps his most visible appearance was to testify on behalf of before the House Financial Services Committee Subcommittee on Capital Markets – against Congressman Patrick McHenry’s draft 2014 crowdfunding bill – on May 1, 2014.kickstarter marketing Seems that this was not the only appearance by the Washington State Securities Administrator in Washington, D.C.:
And what do you think Mr. Staples did when we met for lunch two weeks later at a midtown Manhattan restaurant? He pressed his smart phone into action midway through our lunch, to confirm a face-to-face meeting with one of his former subordinates, Rick Fleming, at his new digs at 100 F Street in Washington, D.C. And what was the outcome of the meeting between Staples and Fleming two weeks later? I contacted Mr. Staples via email the day after his meeting with Chief Investor Advocate, Rick Fleming to ask him that very question.
I will withhold judgment on this matter, at least until I get an official answer to my question from the Division of Corporation Finance ![]() : When is the Division of Corporation Finance going to revisit this issue as it promised to do in 1998? – of great importance to over 40 state legislatures around the country considering the contours of state crowdfunding legislation – and undoubtedly of great importance to NASAA as well. Draw your own conclusions – I’ve drawn mine. It appears that NASAA has landed in force at the headquarters of the SEC – replete with “boots on the ground” in the persona of Rick Fleming and a cadre of loyal constituents. If true, this does not bode well for small business – most immediately, in terms of implementation of the JOBS Act – as many of us anxiously await implementation of JOBS Act crowdfunding and Regulation A+ More on this in the coming days and weeks, as the search for truth and justice for small business in Washington, D.C. continues.by the SEC – on the heels of a massive lobbying effort by NASAA in Congress and at the SEC.crowdfunding marketing Posted from: http://www.crowdfundinsider.com/2014/07/43119-intrastate-equity-crowdfunding-risk/ |