The JOBS Act is a problem for the SEC.

The ultimate question is whether or not the JOBS Act will inspire the next Steve Jobs or Bernie Madoff. The debate is landing squarely on how much help it is for start-ups versus the possibility of abuse and fraud. It is supposed to help small business get funding by easing restrictions and regulations on the process of raising capital. Small business start-ups need the SEC to get this one right and it will be a boost for start-ups around the country. It will actually depend on how the SEC structures the process so that it is functional while still protecting investors. The SEC has announced that they are “seeking public opinion” which the regulatory body will take under consideration along with all the nightmare scenarios that they are speculating could occur. As it stands the restrictions are very “entrepreneur friendly,” and the problem is that the way it is set up now can open the door to a ton of fraud. The SEC is already overwhelmed with trying to regulate what laws are already on the books and simply will not be able to regulate the entire process of crowdfunding as it goes forward. The most important part of the JOBS Act to entrepreneurs is crowdfunding which allows for companies to raise capital online. Most importantly, the ACT eases restrictions on the number of shareholders allowed to participate in the offering, amount they may invest, and removes the accreditation requirement. Another troublesome part of the crowdfuning provision is how to protect the investors from unscrupulous dealings. Ken Honeyman, President of The Capital Matchpoint recently stated that “The SEC already has its hands full, and they simply do not have the resources to scrutinize and regulate this new breed of securities.” The Capital Matchpoint has web resources in place to handle crowdfunding deals once all the dust settles and has been a proponent of the bill since its inception. During the great depression legislation was passed to protect the public. It was called the Securities Act of 1933. That was passed in part to among other things protect investors post market crash of 1929. The Securities Act requires that in order for stock to be sold publicly in the United States it must be properly registered with the SEC. The filings and statements then become public record and they contain key disclosures which protect the public. The JOBS Act creates a key exemption by not forcing registration of the shares to the SEC if they meet certain requirements. The Act allows up to 1 million dollars to be raised within a 12 month window and allows that the investors solicited have a much lower financial threshold to be able to invest. The amounts vary and depend on their income or net worth. 1. An investor’s annual income or net worth is less than $100,000. This person can invest $2,000 or 5% of his or her annual income or net worth within any 12-month period. 2. An investor’s annual income or net worth is equal to or more than $100,000. This person can invest 10% of his or her annual income or net worth, up to a maximum amount of $100,000. 3. The transaction much be done through an intermediary, such as a broker or funding portal, which must register with the SEC. These three things have already been solidified as being a done deal. The next aspect of the process is for the SEC to make a variety of additional rules which will apply in an effort to protect the investor community. The SEC will be weighing in on: •What disclosures intermediaries must provide to investors, including disclosures about risks and other investor education materials; •Standards to make sure investors have reviewed these materials and understand them; •Measures to reduce the risk of fraud; •Making sure that no investor in a 12-month period has bought more shares than the law allows; •Protecting the privacy of information collected from investors. Written By Edward Cambas - From the Edward E. Cambas Business Desk.