By Cydney Posner
According to this article in Investment News, the crowd-funding legislation, which raced easily through the House, has stalled in the Senate, "as lawmakers mull whether unsophisticated investors are vulnerable when capital formation occurs online." Apparently, both the House and Senate measures have "drawn strong opposition from the North American Securities Administrators Association Inc., which claims that states would not be able to stop a fraud until after it were perpetrated." According to the NASAA president, "Congress must be sure to do a careful and deliberate thing, which is look at investor protection….That's exactly what the Senate is doing now. You can't pass the capital formation bills without adequate investor protection." However, he acknowledged that another bill, introduced in early December by Sen. Jeff Merkley, D-Ore., would address some of the main concerns. That bill would "grant companies an exemption from SEC oversight but not state regulation and would limit company offerings to $1 million annually. It would set a $500 ceiling on individual investments for someone earning less than $50,000 and raise the limit to $2,000 based on higher salaries." Crowd-funding proponents argue that "We haven't shut the markets down because of the fraud perpetrated in them. We shouldn't stop people from supporting entrepreneurs either."
The article opines that the Senate will certainly not "rubber-stamp the House bill. Unlike the House, where each of its 435 members is up for re-election next fall, in the Senate, only one-third of its members are facing the voters in November. There is less political pressure to push through a bill touted for its job creation potential and more time to examine potential drawbacks." A less cynical view expressed in the article is that senators view crowd funding as a relatively new idea and, as a result, the Senate is "going to make extra certain to work with the [SEC] and their experts to explore the implications, especially for consumers, small investors [and] ordinary folks." Some view the availability of social media as a possible risk mitigator: "third-party crowd-funding platforms would have to contain comment fields and rating buttons allowing potential investors to vote on the ideas offered there. One difference between the House [and Senate] legislation is that the latter would not permit startups to raise funds via social-media sites such as Facebook, Twitter or LinkedIn. Issuance would be permitted solely ‘through a crowd-funding intermediary' such as Kickstarter. The House bill would permit issuance through Facebook, et al. ‘The whole point of social media is that it is self-vetting and it will weed out fraud,'" said one proponent.