The Securities and Exchange Commission has finally released proposed rules for the crowdfunding exemption of the 2012 Jumpstart Our Business Startups Act. Confirming initial indications, the rules do not require businesses raising capital under the exemption to verify that investors remain within legal investment limits.

The decision to allow people to invest in opportunities not vetted by regulators and without any income or net-worth verification is a symptom of the problems inherent in the law. The JOBS Act attempts to do the impossible: balance investor protection with a desire to enable companies to raise money from strangers all over the country with minimal red tape.

And I am saying this as one of the earliest proponents of a crowdfunding exemption. My involvement with what ultimately became the JOBS Act began in 2010 as I worked with entrepreneurs and artists attempting to raise capital. My colleagues and I encounter their frustrations every day at our firm, which focuses on the financing needs of small to medium-size businesses.

Commonly used securities laws make it difficult and expensive for small businesses and entrepreneurs to publicly offer investment opportunities if the investors are not wealthy ($1 million in net worth or $200,000 in annual income).

In 2010, through a non-profit that I co-founded called the Sustainable Economies Law Center, I submitted a formal petition to the SEC to create an exemption for offerings that capped the amount any single investor could put in.

Our original petition garnered media coverage and letters of support from all over the country, yet we heard nothing from the SEC. But a White House staffer became intrigued by the idea after we presented it to the SEC’s annual Forum on Small Business Capital Formation. Congressional hearings and a presidential proposal for a crowdfunding exemption followed, and after some changes in the House and the Senate, the final legislation – the JOBS Act – was signed into law April 5, 2012.

So how does it feel to be the one whose petition led to the creation of the JOBS Act?

I have many concerns about the final version of the crowdfunding exemption (Title III of the act).

Because of the large potential risk to investors posed by a completely unvetted offering, Congress felt compelled to impose onerous requirements on companies raising money under the crowdfunding exemption. These include:

• Requirement to use an online intermediary that could be costly and make the offering inaccessible to some investors.


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