Hearing on Crowdfunding held on January 16, 2014 by the House Committee on Small Business Subcommittee on Investigations, Oversight and Regulations. Witnesses discussing crowdfunding included:
1. Jason Best (author of “Crowdfunding Investing for Dummies” and tech entrepreneur) who thought the audit requirements for raises above $500,000 were too burdensome and would create a “soft cap” on fund raises. He examined U.K. study and developments in the U.K. marketplace for crowdfunding, which more than doubled from $800 Million to $1.3 Billion from 2012 to 2013. He characterized U.K. regulations as a successful “light touch” approach and provided these statistics in his testimony.
2. Daniel Gorfine, Milken Institute, Director of Financial Market Policies and General Counsel. Testified that the rules should emphasize investor caps to protect the investor and limit future lawsuits if such caps are ignored. Funding portals should have discretion as to what can be listed, so that fundings that likely fail can be discriminated against. And because funding portals are really just bulletin boards, unable to provide investment advice, funding portal platforms need to have protection against liability.
3. Prof. Mercer Bullard, Securities Law Professor at Mississippi School of Law. Testified about his concern for the potential high failure rate of crowd funded projects.
4. D.J. Paul, Co-funder of “Crowdfunder.” He addressed 4 issues,
1: Audit requirements, 3 tiers – third tier requires CPA audited financial every year, which is more onerous than for Reg D offerings.
2: Pool of investment restrictions: would restrict hedge funds from investing in crowd funded investments. Likely an over broad restriction.
3: Intermedia participation restriction: portals cannot invest and should be allowed to do so.
4: Funding portal liability: the funding portals cannot be a guarantor of the offering.