Crowdfunding Proposal Hits Snag – Eliza Newlin Carney (Roll Call)
March 15, 2012

“As the Senate prepares to take up the House-passed Jumpstart Our Business Startups Act, a popular proposal to free up capital through ‘crowdfunding’ has pitted consumer advocates against  entrepreneurs. The idea behind crowdfunding is simple: Instead of going to a bank for loan, a startup or small company seeking capital makes an ‘open call’ to a community of potential small donors who pool their resources, typically on the Internet. President Barack Obama touted the power of crowdfunding in his American Jobs Act last year and in his legislative agenda last month. Support for the concept has come from such strange bedfellows as Silicon Valley executives, artistic nonprofits, the U.S. Chamber of Commerce and associations representing self-employed, female, minority and small-business owners. …But consumer advocates, watchdog groups and some economists are raising alarms. Taken together, the JOBS Act’s various provisions represent a dramatic rollback of financial regulations that date back to the Great Depression, they argue. It would reverse protections enacted with the Dodd-Frank financial reforms, some warn. ‘We’re all for channeling capital to small businesses,’ said Marcus Stanley, policy director of Americans for Financial Reform. ‘At the same time, we have banks for a reason, as opposed to people standing on the street corner taking shares in companies. So you’ve got to strike a balance.’ Columbia University law professor John Coffee Jr. testified on Capitol Hill in December that rolling back SEC registration and disclosure requirements for companies seeking crowdfunding invites what’s known as ‘boiler room’ fraud, in which scam artists create phantom companies and solicit investors by phone, email and other means. Even some advocates of crowdfunding warn that the JOBS Act should not become a vehicle for throwing out too many SEC regulations. ‘We’re concerned about deregulating the process too much,’ Knapp said. ‘For those who want to raise a great deal of money, there have to be safeguards for the consumer.’ The American Sustainable Business Council wrote to Senate leaders Wednesday to endorse an alternative crowdfunding bill introduced by Sen. Jeff Merkley (D-Ore.). Co-sponsored by Sens. Michael Bennet (D-Colo.), Scott Brown (R-Mass.) and Mary Landrieu (D-La.), the bill includes tougher rules than those in the House JOBS Act, such as stronger disclosure rules and a registration requirement for Internet crowdfunding sites.” Click here for more.