State Sens. Kyrillos, Lesniak want crowdfunding now
on September 27, 2013 at 4:12 PM, updated September 30, 2013 at 11:55 AM
Crowdfunding should have been 272 days old today.
According to the Jumpstart Our Business Startups (JOBS) Act, the Securites Exchange Commission had until Dec. 31, 2012 to issue rules to legalize crowdfunding.
Not the kind that takes place on Kickstarter or Indiegogo, where companies give people product samples and gifts in exchange for donations. That already exists.
The JOBS Act, which was signed into law on April 2012, prescribes crowdfunding that would allow small, private companies to raise money by selling stock to investors through licensed brokers and online portals.
While giving a speech in New York City on Tuesday, SEC Chairmain Mary Jo White said she hopes to release proposed rules before 2014. But State Sen. Joe Kyrillos (R-Monmouth) wants to speed things up for New Jersey residents.
On Monday he and co-sponsor State Sen. Ray Lesniak (D-Union) plan to introduce a bill in Trenton that would make it legal for New Jersey companies to raise capital by selling securities to New Jersey investors, according to Kyrillos spokesman Jeremy Rosen.
It would create an intrastate crowdfunding network that in many ways mimics what has been laid out in Title III of the JOBS Act.
The act, broken into seven sections called titles, eases regulations and reporting restrictions that applied to new public companies. Last Monday, Title II took effect and lifted an 80-year ban on issuers publicly soliciting potential investors.
Although a Kyrillos press release announcing the crowdfunding legislation takes a shot at President Obama, saying his administration has delayed the full implementation of the JOBS Act, spokesman Jeremy Rosen said the bill isn’t just about racing to beat federal regulators.
“It’s about getting the economy moving. For Title III they’re talking about sometime next year having it ready,” said Rosen. “I don’t know what the hold-up is exactly. [Kyrillos] wants to get this going in New Jersey so there can be more private investment.”
Private investment experts say state lawmakers might lose some momentum if they don’t get their bills signed into law before the SEC issues a proposed rule, but that hasn’t stopped them from trying.
At least nine other states have sought to create their own crowdfunding systems through bills, rules and orders–with varying degrees of success.
Before the JOBS Act had even been signed, Kansas, Georgia and Idaho changed rules at their state securities boards to allow intrastate crowdfunding. Nebraska and Minnesota passed laws this year doing the same. Lawmakers in North Carolina, Maine and Wisconsin have been considering crowdfunding bills this year and the Maryland House Economic Matters Committee killed one in March with an unfavorable report.
The Kyrillos-Lesniak bill would leave it up to the New Jersey Bureau of Securities to administer crowdfunding rules.
The Newark-based agency, part of the Office of the Attorney General, licenses brokers, logs complaints from investors and investigates fraud.
It’s that last function that has critics of crowdfunding worried about making it easier for companies to raise money online.
Bureau chief Abbe Tiger said her agency already fields plenty of fraud complaints and pays particular attention to what happens online.
“We frequently get complaints from investors who have invested in private placements and the purported private placements turn out to be nothing more than a Ponzi scheme,” she said. “We see those all the time.”
In the past three years, starting in 2012, the bureau received almost 1,000 complaints and decided to take action on 181 occasions.
Tiger’s Washington state counterpart, Bill Beatty, serves as corporate finance section chair for the North American Securities Administrators Association, an investor protection organization. He said it’s still hard to predict whether intrastate crowdfunding will be able to coexist once the SEC creates a national market.
“Everybody has been hearing it’s supposed to happen before the end of the year. Will it take the wind out of their sails? It’s hard to say,” Beatty said. “There might still be a role for state offices, especially if the federal rules are more expensive to comply with.”
That might be the case in New Jersey.
The Kyrillos-Lesniak bill would not require that issuers use a broker or internet portal as an intermidiary, which cuts out a middle man who would otherwise be looking to get paid.
Trying to become one of those middle men has been tough, said Daryl Bryant. He’s the founder and CEO of crowdfunding portal Startup Valley, but hasn’t been able to open for business because the SEC has yet to act.
Several thousand investors and about 60 startup companies, lots of them based in New Jersey, have already created profiles on the Saddle Brook company’s network.
Bryant would welcome the chance to become a portal for New Jersey companies and investors until crowdfunding gets rolled out on a national level.
“That would be great if New Jersey did this,” he said. “Most of our efforts so far have been around setting up partnerships and relationships with different organizations and affinity groups in the area. We were going to launch with a focus on the local area anyway.”