Entrepreneurs Watch As Crowdvesting Bill Stalls In Senate

cayenne8 writes "The JOBS Act bill, passed in the house, has stalled in the senate. One section of this bill, which would legalize 'Crowdsourcing' in the U.S., as it is in other countries, allowing companies and startups (like indie film makers) to solicit investments for profit over the internet. This differs from sites like Kickstarter, which allow you to only donate money, in that this bill will allow the common citizen to invest for potential profit ($10K or 10% of income for investor limits) in new ideas and companies."

Comments

Actually, it's now been passed with amendments

[webplay]

http://www.nytimes.com/2012/03/23/business/senate-passes-start-ups-bill-with-amendments.html?_r=1&hp

Re:Actually, it's now been passed with amendments

[Anonymous Coward]

The House bill would allow individual investors to invest up to $10,000, or 10 percent of their annual income a year, whichever is less. The Senate bill would limit those investments to the greater of $2,000, or 5 percent of either annual income or net worth, if either figure is less than $100,000.

So for those of us in the $50k-$100k category that limits the investment to $2,500-$5000 instead of $5,000-$10000.

Doubles the number of investors needed.

A bit odd, that, since 10% of yearly income, while significant, isn't exactly something that should break you financially. Seems a bit overcautious.

Re:Actually, it's now been passed with amendments

[sexconker]

The House bill would allow individual investors to invest up to $10,000, or 10 percent of their annual income a year, whichever is less. The Senate bill would limit those investments to the greater of $2,000, or 5 percent of either annual income or net worth, if either figure is less than $100,000.

So for those of us in the $50k-$100k category that limits the investment to $2,500-$5000 instead of $5,000-$10000.

Doubles the number of investors needed.

A bit odd, that, since 10% of yearly income, while significant, isn't exactly something that should break you financially. Seems a bit overcautious.

It's not cautious, it's designed to prevent you from profiting off of investments or funding your business outside of a major stock exchange.
Any American investments greater than 1 pittance must first be taxed by banks and stock brokers, then left in their control to fuck up.

You're not unamerican, are you?

When was it made illegal?

[cpu6502]

Why was Profiting from Crowdsourcing a movie, song, or book made illegal? And when did it happen.

Re:When was it made illegal?

[blakelarson]

Crowdsourcing in general is illegal because of hucksters tricking people out of their investment dollars. Only when you have a detailed, SEC-approved prospectus can you sell shares publicly as a C-corp. This is an expensive endeavor for small operations. So they raise "private" money, but mostly from accredited investors, who are supposedly rich enough to not do stupid things with their money. Or at least have the resources to sue the people running the company. Kinda arbitrary. But the key is that a company cannot publicly solicit investors. I think that crowdsourcing is a great idea, but we need to be sure to cover the potential for abuse. There's a reason the laws are in place. I'd love to be able to raise some cash this way.

Re:When was it made illegal?

[LehiNephi]

Crowdsourcing is not specifically illegal, but there are many regulations and laws which apply to companies that allow investments. For a small business, these regulations can be enormously onerous--rules for how finances are tracked, requirements for independent auditors, etc. Mostly, this bill waives the requirements for such a small business for the first few years. I think there's an assumption that the company will either die out in that period or become large enough that it can afford those regulatory expenses.

Re:When was it made illegal?

[mcmonkey]

Why was Profiting from Crowdsourcing a movie, song, or book made illegal? And when did it happen.

My question as well. Follow the crowd sourcing link in TFS. It's actually not just a link to a wikipedia entry defining crowd sourcing.

As Amy Cortese writes in the NYTimes:

Under those laws, crafted largely in the 1930s, the sites would have to either limit the fund-raising to wealthy investors, who the S.E.C. deems sophisticated, or go through a registration process that would prove too costly given the small sums being sought

Re:When was it made illegal?

[Anonymous Coward]

That is exactly what the Senate amendments to the bill address: http://www.crowdsourcing.org/editorial/a-look-at-the-proposed-amendments-to-the-crowdfunding-bill/12669

The gist of the amendments (which I believe just passed) tighten up the certification and disclosure rules, the requirements for investors (based on annual income), and some important arcana on who is allowed to advertise these things (e.g., no pump-and-dump schemes.) The amendments strike me as a fairly good idea-- if you're asking for a half a million dollars from random people you don't know, then, yes, you're gonna get a CPA to certify and publicize your finances.

With those amendments, the overall idea also strikes me as a good idea. Sanity seems to have prevailed, assuming the House approves the amendments.

Re:When was it made illegal?

[Animats]

Crowdsourcing in general is illegal because of hucksters tricking people out of their investment dollars.

Right. There is a long, long history of investment scams, from John Law's bank to Florida real estate to "High Yield Investment Plans. The current big scam thing is "distressed real estate". That's why we have SEC registration and mandatory disclosures. Here are some recent scams of that type.

"Crowdfunding" is about selling unregistered securities to individuals. This usually ends badly.

If anything, the rules on who is a "qualified investor" and can invest in private placements should be tightened up. At present, pension funds are considered "qualified investors", which means they can invest in hedge funds. That didn't work out too well around 2008.

Scam?

[koan]

"Of course, supporters don’t describe it that way. They say the JOBS Act — for Jumpstart our Business Startups — would remove burdensome regulations that they claim have made it too difficult for companies to raise money from investors, impeding their ability to grow and hire.

Never mind that reams of Congressional testimony, market analysis and academic research have shown that regulation has not been an impediment to raising capital. In fact, too little regulation has been at the root of all recent bubbles and bursts — the dot-com crash, Enron, the mortgage meltdown. Those free-for-alls created jobs and then imploded, causing mass joblessness. "
https://www.nytimes.com/2012/03/11/opinion/sunday/washington-has-a-very-short-memory.html?_r=3&partner=rssnyt&emc=rss

Re:Scam?

[cpu6502]

During George "duh" Bush's administration the number of regulations increased from 110,000 to 150,000 pages. The New York Times must be using a definition of the word "deregulation" that I am not familiar with, because I would call a ~50% increase in regulations the Exact Opposite of deregulation.

I cannot comment of the dot-com or enron debacles, but it is very clear to me the mortgage bubble was created by the Government, its Fannie/Freddie organizations, and the private bank monopoly known as the Fed. They colluded with one another to provide tons of cheap low-interest loans, and that fueled the rapid rise in demand for limited housing, and eventual burst of the bubble in 2007-8. If anything it was TOO MUCH regulation (Congress insisting everyone should get a mortgage, even if they were too poor to pay it back).

Re:Scam?

[turkeyfish]

Obviously, you learned nothing about the economics of credit default swaps and why they were behind the financial meltdown. You just swallowed Wall Street's line that it was all those poor people conspiring against all those honest businessmen on Wall Street. Get ready to get fleeced, AGAIN.

Outdated information

[TubeSteak]

http://news.cnet.com/8301-1001_3-57402589-92/jobs-act-clears-senate-one-step-from-becoming-law/

The JOBS Act has passed the Senate. In a 73 to 26 vote today, an amended version of H.R. 3606, which opens startup investing to individuals ("crowdfunding") and gives young companies more flexibility in filing to enter the public stock markets, cleared what is probably its last major hurdle before becoming law.

I'm really surprised that it passed the Senate as the JOBS act is chock full of poorly thought out deregulation.
It's so bad that the head of the SEC has come out against it and State securities regulators are against the bill

If this bill becomes law, it'll directly lead to the next wave of investor fraud.

Re:Outdated information

[Tanktalus]

To be fair, you may be talking about some of the people who best know the world of investment finance, but they also have a vested interest in opposing deregulation: it removes some of their power. They no longer have oversight over something, and that is generally a scary proposition for people in power.

This doesn't mean they're wrong, merely that you have to evaluate their statements in the context of their positions. As you should do for investment bankers who might be in favour of the change.

Re:Boom & Bust

[LehiNephi]

I suspect you're not familiar with the specifics of the bill--it limits how much an individual can invest in such a company--only up to 10% of their income or $10k (whichever is less) in the less-restrictive version of the bill. It ain't gonna make any investor go bankrupt who isn't headed there already.

This bill is a terrible idea

[AcidPenguin9873]

This bill reduces oversight, regulation, and investor protection measures when companies want to raise investment capital. Please read the following:

http://baselinescenario.com/2012/03/20/cfa-institute-against-the-jobs-bill/
http://baselinescenario.com/2012/03/21/jobs-disaster-looms/
http://baselinescenario.com/2012/03/22/last-ditch-attempt-to-save-a-little-bit-of-investor-protection-in-the-united-states/

One of the biggest cause of the recent financial crisis was too little regulation of the financial industry. I do *not* want to do it again in 5 years.

Re:And it will NEVER be abused

[Voogru]

Prostitution should be legal anyway.

Re:How does venture capitalism work then?

[Voogru]

I guess people havent figured out that this is really a scam which enables the already rich to profit even more because they don't have to share the profits with the lower classes.

Of course, if they sold it like that, they couldn't vote for it. So it's instead sold as "We're going to protect you from scammers by making it impossible for you to invest in small startup companies! Don't worry, we'll invest in them and keep all of the rewards for ourselves."

You just keep buying those CD's now.

Remember folks, the laws are created to protect the rich and powerful. Not for the common individual.

Re:How does venture capitalism work then?

[TimHunter]

Now we know better. Ask Alan Greenspan:

Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity — myself especially — are in a state of shocked disbelief.

http://www.independent.co.uk/news/business/analysis-and-features/quotes-of-2008-we-are-in-a-state-of-shocked-disbelief-1220057.html

LendingClub - can already do this in many states

[witherstaff]

LendingClub, a peer 2 peer investment firm, was a Forbes 2011 most promising company. For people who have invested about 20K, 100% have not lost any money. Basically it allows people to get loans that are graded A-F, better grade, lower interest. Then you can buy into a loan from $25 - $5k. Once enough people fund the loan it goes active. Average loan is 11K for debt consolidation, average return is 6%. Not bad. They also have done over 1/2 a billion in loans.

I'm not part of the company, I was just investigating a good investment for some excess money and dug into them. Sadly, this is not usable for me since I'm in a state it is not allowed - Michigan. However there is also a secondary market for trading already bought loans and that is workable, not as nice, but a possibility.

I can see why only about 1/2 the states allow this, the banks have to be fighting to stop this very hard. Borrowers can gets loans for half of what banks want to change, investors can be one step away from their investments, it's a nice setup. But it goes against the golden rule - he who has the gold makes the rules.

Sign me up!

[__aaltlg1547]

I'm just thrilled at the possibility that I could get in on the ground floor with somebody's great investment opportunity. I'll wire all my money to Nigeria right away.