Yay! New Laws for Crowdfunding!

[Renegade]

The SEC is apparently creating laws to do away with bad laws so that people can start businesses.

http://finance.yahoo...aited-105956761.html

Entrepreneurs and start-up companies looking for backing will be able to solicit small investments over the Internet from the general public under a new proposal to be released by U.S. regulators on Wednesday.

The Securities and Exchange Commission's "crowdfunding" plan is a requirement in the Jumpstart Our Business Startups (JOBS) Act, a 2012 law enacted with wide bipartisan support that relaxes federal regulations to help spur small business growth.

Equity crowdfunding lets small companies raise money by pooling together tiny investments from people around the country in exchange for a potential financial return.

If adopted by the five-member SEC, the rule would be a major shift in how small U.S. companies can raise money in the private securities market.

Private companies are now only allowed to solicit investors deemed to be "accredited," meaning they have a net worth of $1 million, excluding the value of their home, or an individual annual income over $200,000. The crowdfunding rule would let small businesses raise over $1 million a year by tapping unaccredited investors.

Companies could sell stakes to mom-and-pop investors without registering the securities with the SEC, a move designed to make it cheaper and less cumbersome for struggling startups trying to get their businesses off the ground. They would still be required to raise the money through regulated broker-dealers such as CircleUp or through crowdfunding portals.

Good news for Kickstarter and Indiegogo? They seemed to be doing fine and regular people seemed to be able to use them.

I'm just confuzzled. More bewilderment at the link.

[40hz]

The problem is when businesses like Canonical start soliciting $32M via Indiegogo that the SEC starts getting concerned. And rightly so IMHO. Especially now that there are so many clueless people flocking to crowdfunding sites.

Many would-be investors have noted how it's relatively easy for a fraudulent person to pre-seed a kickstarter with large personal pledges (in order to create the appearance of project momentum) only to pull them later on. This trick has been seen more than a few times on both Kickstarter and Indiegogo.

So if anything was ever ripe for scamming, it's crowdfunding. And to add to the fun, we're already starting to see major corporations now looking at crowdfunding solicitations as a way to circumvent regulations designed to prevent investor abuse.

Then there's those game devs that have a successful Kickstarter campaign only to mysteriously become hard to find afterwards. (See here and here.)

Not all regulation is automatically bad.

[wraith808]

Well, considering the fact that the returns on 'investments' on kickstarter/indiegogo are products and not hard curry, I'm not sure that the applicability is there.  And looking at the proposed legislature, I hope it's not.  Because they change the barrier to entry drastically, where this barrier was the reason that crowdfunding became popular in the first place.

While it is true that there are scams, we can't say that anything the feds try to regulate aren't scams also.  So this seems to try to solve a problem that they should perhaps solve on the larger scale first and leave the couple of negative examples as just that?  A couple of negative examples?

[Renegade]

Not all regulation is automatically bad.

-40hz (October 23, 2013, 11:29 AM)

Please name some regulation that isn't bad. But before you tell me what it is, ask yourself if there isn't already some law to deal with the situation already in place. It's harder than it sounds.

Nothing in that law is remotely needed. There are already laws against fraud.

If the point is to prevent scams/fraud, well, how about start by enforcing existing laws against criminal organizations that are guilty of fraud?

However, I'm thinking about this all logically. Programming has that affect on you. e.g. If there's a method to handle A, then use it and don't create another method.

We don't need lawyers and politicians creating more laws. We need programmers, coders, system architects, information architects, etc., working to destroy as many laws as possible. What we want is something neat, clean, and easy to use.


What do you think the law would look like if it were an API/SDK?

[Stoic Joker]

Nothing in that law is remotely needed. There are already laws against fraud.

-Renegade (October 23, 2013, 10:26 PM)

+1 - I still say the 10 commandments were enough if the spirit of the laws were followed instead of constantly mincing words to carve out loopholes.

What do you think the law would look like if it were an API/SDK?

-Renegade (October 23, 2013, 10:26 PM)

ROFL ...That could only happen in a mythical land where computers could count to at least 3.

Code: C++ [Select]

1. BOOL bGuilty = 2 // Close enough because (house needs a win) defendant can't fight our need for a conviction.

[Renegade]

What do you think the law would look like if it were an API/SDK?

-Renegade (October 23, 2013, 10:26 PM)

ROFL ...That could only happen in a mythical land where computers could count to at least 3.

Code: C++ [Select]

1. BOOL bGuilty = 2 // Close enough because (house needs a win) defendant can't fight our need for a conviction.

-Stoic Joker (October 24, 2013, 07:17 AM)

Hahaha!  

We could have a lot of fun writing "legal" code.

[Renegade]

Please name some regulation that isn't bad. But before you tell me what it is, ask yourself if there isn't already some law to deal with the situation already in place. It's harder than it sounds.

-Renegade (October 23, 2013, 10:26 PM)

<crickets />

[40hz]

Please name some regulation that isn't bad. But before you tell me what it is, ask yourself if there isn't already some law to deal with the situation already in place. It's harder than it sounds.

-Renegade (October 23, 2013, 10:26 PM)

<crickets />

-Renegade (October 25, 2013, 11:01 PM)

Not so much crickets as this is borders on a debate over what amounts to an almost religious belief on the part of some.

I don't have the energy (or gluteal stamina) to get into that sort of a discussion in text these days.

I'll save that for a F2F (over drinks or coffee) at the first Annual DoCo Gathering of Geeks.

[Renegade]

Please name some regulation that isn't bad. But before you tell me what it is, ask yourself if there isn't already some law to deal with the situation already in place. It's harder than it sounds.

-Renegade (October 23, 2013, 10:26 PM)

<crickets />

-Renegade (October 25, 2013, 11:01 PM)

Not so much crickets as this is borders on a debate over what amounts to an almost religious belief on the part of some.

I don't have the energy (or gluteal stamina) to get into that sort of a discussion in text these days.

I'll save that for a F2F (over drinks or coffee) at the first Annual DoCo Gathering of Geeks.

-40hz (October 26, 2013, 07:52 AM)

Oh, yeah, sure! Energy! Gotcha.

Hehehe! (Sorry - I can't help but razz about this - it's just too much fun! And yes - I honestly believe that there's no regulation whatsoever that I couldn't mock and make fun of in one way or another! )

Fair enough. Until then, please imagine the API.

Here's a bit of boilerplate code to help your imagination. I've put some serious thought into it, and I think that I've nicely encapsulated several characteristics that you'll find repeated in the Gov.API.

Code: C# [Select]

1. private int AddTwoNumbers(int numb)
2. {
3.     switch (numb)
4.     {
5.         case 0:
6.             return AddTwoNumbers(numb);
7.             break;
8.         case 1:
9.             return AddTwoNumbers1(numb);
10.             break;
11.         case 2:
12.             return AddTwoNumbers2(numb);
13.             break;
14.         // Etc. etc. etc.
15.         default:
16.             throw new Exception("You didn't really expect this stuff to work, did you?");
17.             break;
18.     }
19. }
20. public int AddTwoNumbers1(int numb)
21. {
22.     switch (numb)
23.     {
24.         case 0:
25.             return AddTwoNumbers(numb);
26.             break;
27.         case 1:
28.             return AddTwoNumbers1(numb);
29.             break;
30.         case 2:
31.             return AddTwoNumbers2(numb);
32.             break;
33.         // Etc. etc. etc.
34.         default:
35.             throw new Exception("You didn't really expect this stuff to work, did you?");
36.             break;
37.     }
38. }
39. private int AddTwoNumbers2(int numb)
40. {
41.     switch (numb)
42.     {
43.         case 0:
44.             return AddTwoNumbers(numb);
45.             break;
46.         case 1:
47.             return AddTwoNumbers1(numb);
48.             break;
49.         case 2:
50.             return AddTwoNumbers2(numb);
51.             break;
52.         // Etc. etc. etc.
53.         default:
54.             throw new Exception("You didn't really expect this stuff to work, did you?");
55.             break;
56.     }
57. }

There's definitely a madness in that method!

[tomos]

^I could say regulate the banks,
but I guess you could come back with bitcoin or silver/gold

[kyrathaba]

What do you think the law would look like if it were an API/SDK?

Yep. And programmers need to be the ones who solve the horrid national tax code, and actually make the Paperwork Reduction Act have its desired effect.

[Renegade]

^I could say regulate the banks,
but I guess you could come back with bitcoin or silver/gold

-tomos (October 26, 2013, 01:23 PM)

They are already heavily regulated. They also enjoy legislation that effectively gives them a monopoly and leaves you with no choice but to use their services. It's working out so very well, isn't it?

[Renegade]

What do you think the law would look like if it were an API/SDK?

Yep. And programmers need to be the ones who solve the horrid national tax code, and actually make the Paperwork Reduction Act have its desired effect.

-kyrathaba (October 26, 2013, 03:54 PM)

As programmers, we think fundamentally differently. We use logic.

[Stoic Joker]

We do?

Code: C++ [Select]

1. int TravelToEndOfRainbow(double);
2.  
3.  
4. // Cash level management Function (note: 'L' if function name is silent):
5. float ElfinMagic(double iWallet) {
6.  
7.    if(iWallet <= 0) {
8.        TravelToEndOfRainbow(iWallet);
9.    }
10. }
11.  
12. // This is a secure function - Not for public viewing:
13. int TravelToEndOfRainbow(double iNeed) {
14.   if(!PrintMoreMoney(iNeed)) {
15.      InvadeNextRainbow(dwAnyExcuse);
16.   }
17. }

[wraith808]

^ Don't kid a kidder.  That's code written by a political science major (and yes, I know a political science major that went into software development).

[Renegade]

We do?

Code: C++ [Select]

1. int TravelToEndOfRainbow(double);
2.  
3.  
4. // Cash level management Function (note: 'L' if function name is silent):
5. float ElfinMagic(double iWallet) {
6.  
7.    if(iWallet <= 0) {
8.        TravelToEndOfRainbow(iWallet);
9.    }
10. }
11.  
12. // This is a secure function - Not for public viewing:
13. int TravelToEndOfRainbow(double iNeed) {
14.   if(!PrintMoreMoney(iNeed)) {
15.      InvadeNextRainbow(dwAnyExcuse);
16.   }
17. }

-Stoic Joker (October 27, 2013, 08:10 AM)

Well, normally, yes. The code we've seen so far here reflects government client requirements. That doesn't count! Really. This is the code for it:

Code: C# [Select]

1. public static overrides int operator +(int a, int b)
2. {
3.     Random random = new Random();
4.     return random.Next(int.MinValue, int.MaxValue);
5. }

That compiles on government machines.

[Stoic Joker]

Code: C# [Select]

1. public static overrides int operator +(int a, int b)
2. {
3.     Random random = new Random();
4.     return random.Next(int.MinValue, int.MaxValue);
5. }

That compiles on government machines.

-Renegade (October 27, 2013, 11:39 AM)

Like hell it will. You try to compile that on a government machine and the debugger will explode. Good god man ... You're trying to return a value?!? That kind of behavior is just not tolerated in government! ...They never return anything.

[tomos]

^I could say regulate the banks,
but I guess you could come back with bitcoin or silver/gold

-tomos (October 26, 2013, 01:23 PM)

They are already heavily regulated.

-Renegade (October 26, 2013, 09:43 PM)

cant let that part of your response go:
yes, naturally, it's the *type* of regulation that's important!  I meant the type of regulation that I believe started disappearing with Reagan....

[wraith808]

But back to the issue at hand:

There's a better (IMO) breakdown on Forbes.  Specifically:

• Crowdfunding caps an amount an issuer can raise to $1 million in any 12-month period.
• Crowdfunding caps the amount a person can invest in all crowdfundings over a 12-month period at 10% of annual income or net worth (incomes of $100,000 or more) or the greater of $2,000 or 5% of annual income or net worth (incomes of less than $100,000).
• Crowdfunding must be done through a registered broker-dealer or registered “funding portal.” Broker-dealers and funding portals may not solicit investments, offer investment advice or compensate employees based on sales. Traditional investment banks have shown little interest in crowdfunding, leading to speculation that crowdfunding will be facilitated by lesser-known financial institutions with little or no retail investment track record.
• Crowdfunding requires a disclosure document to be filed with the SEC at least 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of over $500,000.
• Unlike Regulation D Rule 506 private placements to accredited investors following the JOBS Act, crowdfunding does not allow advertising except solely to direct investors to the appropriate broker/funding portal.
• Annual reports must be filed with the SEC by a company which completes a crowdfunding round.

These rules are specifically about control, not fraud.  In fact, there's nothing in there to do anything with fraud, other than limit the amount that an individual project can bilk people for.  In the meantime, it puts a burden that the smaller companies can't even afford to take on for the amounts of money we're talking about, and there are no exemptions.

I might be reading that wrong... but it appears that Forbes agrees with that take on it.