FINRA Seeks Public Comment in Advance of Crowdfunding Rulemaking

The Financial Industry Regulatory Authority (FINRA) has requested public comment and input in advance of preparing and publishing proposed rules related to the Crowdfunding Act.  The scope of the FINRA rules will be written specifically for registered funding portals and although they will need to be complementary to the SEC rules, it is intended that they not be duplicative.  FINRA has set August 31, 2012 as the deadline for receiving comments.

As Related to Registered Funding Portals

Section 302 of the Crowdfunding Act requires that all Crowdfunding offerings be conducted through an intermediary that is a broker dealer or funding portal that is registered with the SEC. Section 304 of the Crowdfunding Act provides that Funding Portals are exempt from the broker dealer registration requirements, as long as they are registered with the SEC as Funding Portals and follow all such registration and ongoing rule and reporting requirements.  In accordance with Section 304, Funding Portals must be “subject to the examination, enforcement and other rulemaking authority” of the SEC and must be a member of an SRO.  That SRO is FINRA.

It was contemplated that a new organization would emerge to act as the SRO for Funding Portals.  CFIRA (Crowdfund Intermediaries Regulatory Advocates) intended for a time to become that new SRO, however the costs and complexities with reaching that goal prior to enactment of the crowdfunding rules, were not achievable.  CFIRA will continue to be an industry player and may still become an SRO, but for now crowdfunding portals will become members of FINRA and subject to its oversight and review.

In its Regulatory Notice seeking public comments, FINRA notes that that the rules will be limited in conjunction with the limited scope of activities by a registered funding portal.  Moreover, FINRA specifically requests comments about rules concerning “supervision, advertising, anti-money laundering, fraud and manipulation, and just and equitable principles of trade.”

As Related to Crowdfunding Activities by Broker-Dealers

FINRA is also soliciting comment on the application of existing FINRA rules related to crowdfunding activities by broker-dealers.  FINRA notes the JOBS Act specifically limits the FINRA rules related to registered funding portals, but does not limit such rules related to broker-dealers.  FINRA invites broker dealers to submit comments as to whether the current rules governing broker-dealers should be relaxed for crowdfunding activities; to the extent such crowdfunding activities are isolated from the other ongoing broker dealer activities.  FINRA is specifically looking to broker-dealers to provide input on how they intend to structure their organization for crowdfunding activities within the firms (i.e. will they have separate departments, staff, etc.).  Finally, FINRA is requesting comments on whether engaging in crowdfunding might present special conflicts or concerns for the broker-dealers.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the over the counter market including the OTCBB and OTCQB. For almost two decades Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to crowdfunding, registration statements, PIPE transactions, private placements, reverse mergers, and compliance with the reporting requirements of the Securities Exchange Act of 1934 including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SRO’s such as FINRA and DTC for corporate changes such as name changes, reverse and forward splits and change of domicile.

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