The SEC missed its second deadline for lifting the ban on general solicitation and has now postponed the meeting for a week. It makes one wonder if the JOBS Act (and the jobs that could be created through it) will be tangled in a sea of red tape.
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http://venturebeat.com/2012/08/22/crowdfunding-delayed-again-blasted-as-a-top-danger/The North American Securities Administrators Association (NASAA) today released its annual list of financial products and practices that threaten to trap unwary investors.
New Threats
Crowdfunding and Internet Offers.
The 2012 JOBS Act makes significant changes to the methods startup businesses and entrepreneurs may employ to bring their ventures to the investing market, and investors must be wary of the attendant risks. Also, many more rules and mechanisms must be put into place for those changes to actually take effect. For example, the relaxed rules governing registration of relatively small securities deals, public solicitation for private funds, and disclosure of information to investors over the Internet are not yet written. So, the JOBS Act provisions related to crowdfunding, a much-publicized method for startups seeking capital, are not yet available – and will not be until sometime in 2013 – to legitimate businesses. Even when the relaxed rules and registration exemptions are effective, they will not make investments in small businesses less risky – just more prevalent. And the JOBS Act provisions do not eliminate fraud, an unfortunate common feature of Internet securities activity.
Many states and provinces report a recent increase in active investigations or recent enforcement actions involving Internet fraud, and JOBS Act-triggered activity is likely to elongate this trend. Investors must remember that small startups are among the riskiest of investment categories under the best of situations. The crowdfunding and Internet investing marketplaces in North America will develop and undergo major changes in the next year, and investors should monitor this emerging capital formation community with a wary eye.
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http://www.nasaa.org/14679/laws-provide-con-artists-with-personal-economic-growth-plan/That first article was written by Jason Best and Sherwood Neiss (who together helped write the House bill that was passed in March, before it become part of the JOBS act that was signed into law in April.). In June I had the opportunity to talk with Jason. What he knew of Bitcoin was what was the general overall message fed by the online media so he was a little surprised to learn that there already was equity crowdfunding using bitcoins.
I got to describe briefly GLBSE and how it uses bitcoin as the trading currency, such that neither the exchange nor the asset issuer necessarily know who the investor is, including from which country the investor hails. When I explained that the cost to IPO was about $50 (BTC/USD was $6 at the time), he appeared to be amused. When I then explained that there are even assets issued where the issuer is psuedonymous, that's when it even went past incredulity into annoyance.
I had purposely mentioned how this space had already moved well beyond what the JOBS Act (U.S. Equity-based Crowdfunding law) would permit. I pointed out some contrasts. With the equity crowdfunding law, Shares purchased are locked up for one year (except for sale back to the issuer or to an accredited investor). Those investors cannot trade the equities they own on a secondary market during that lockup.
Another contrast is that the with the JOBS Act, equities offered via crowdfunding in the U.S. can only be purchased by those from the U.S.
I pressed Jason as to why foreigners were ineligible to buy crowdfunded shares and his response was something to the effect that it was already nearly too much of risk trying to get the congress members and staff to grasp the crowdfunding concept. If the bill were to include secondary markets and foreign ownership, they might not have been able to get it passed.
So the earliest you are going to be able realize the gain on an equity that was crowdfunded is no earlier than when you can first sell it ... in 2014 at the earliest.
There wasn't much of a response then when I had stated that this online cyberequities system with no phsyical presence in any country wasn't something waiting on U.S. rulemaking to reach completion nor was it going to be getting altered once the rules come out so that it is compliant.
In hindsight, perhaps the reason I didn't get much of a response was because it really doesn't matter. Really. These aren't shares of ownership of incorporated entities, nonetheless even U.S. entities. You aren't at risk of little old ladies investing in them. This is not real equity and not real money.
I think as long as it is kept out of FarmVille where anyone would notice it wil be left alone.
