Friday, April 5 marks the one-year anniversary of the signing of the Jumpstart Our Business Startups (JOBS) Act into law.
Unfortunately, key provisions of the act have yet to go into effect, thanks mostly to the political quagmire resulting from turnover within the leadership of the U.S. Securities and Exchange Commission. The departure of Mary Shapiro as Chairman of the SEC on November 15 was followed by the appointment of Elise Walter to replace her on December 11. Now Mary Jo White waits to take over for Walter. Combine this with significant SEC staffing changes and the fact that SEC Commissioner Paredes is about to run up against his term limit, and you have one heck of a bottleneck.
It’s been surprising to me that the regulatory process has been so hard to navigate and has taken so long. Because the legislative work of getting the JOBS Act passed was remarkably smooth and speedy.
My own involvement began with my work with Senator Jeff Merkley (D-Ore.) on the audit requirements section of the Entrepreneur Access to Capital Act. I felt like I was really on the inside-;but my company was about to run out of money.
I had been running SoMoLend, a debt-based crowdfunding company, since May 2011. I raised some seed funding in September 2011, but it was a challenge, to say the least. Most of my potential investors didn't believe that debt crowdfunding would ever be legalized.
In January 2012, at an event in New York, I met Congressman Patrick McHenry (R-N.C.), Jason Best, a principal at Crowdfund Capital Advisors, and Vince Molinari, the CEO of Gate Technologies. Each of us had been working on similar legislation independently. We started working together and began to make some real progress.
By this point the House had passed its version of the JOBS Act, and the Senate was working on their version. Over the next three months, Jason, Vince, and I worked with many others to write a bill that could pass the Senate. On April 5, 2012, President Obama signed the JOBS Act into law.
Then the regulatory process kicked in. The JOBS Act contains a number of provisions, but the two that are most important to my company are Title II and Title III. Title II allows businesses to solicit to raise money from accredited investors, and was supposed to be enacted after 90 days, or on July 5, 2012. Title III legalizes debt and equity-based crowdfunding, and was supposed to be enacted after 270 days, or on January 1, 2013.
With this expectation, I launched SoMoLend’s online debt-based crowdfunding platform. I also became the co-chair of Crowdfund Intermediary Regulatory Advocates (CFIRA), an advocacy group that works with the SEC and the Financial Industry Regulatory Authority in drafting the regulations accompanying the bill. We have been meeting nearly every week since April 2012.
I understand that it takes time to enact a law, and that regulators never meet deadlines. And I believe the regulatory staff has worked tirelessly to meet these particular deadlines. But the lack of federal guidance has created a ton of confusion. Crowdfunding platforms, FINRA, and state regulators are all working in a vacuum, without federal guidance.
I am concerned for my business and the lost opportunity for small business growth. Those of us who have spent the most time and money educating our regulators and working with them may be the first to run out of money before the rules go into effect. Thousands of small businesses seeking capital through our platforms to fuel their growth and job creation also anxiously wait for legalized debt and equity-based crowdfunding.
And we will continue to wait.