Strict in the Wrong Places: State Crowdfunding Exemptions’ Failure to Effectively Balance Investor Protection and Capital Raising
ABSTRACT. In 2012, Congress passed the Jumpstart Our Business Startups Act, which created an exemption from securities registration for crowdfunded capital raises. Although it was not until May of 2016 that the Securities and Exchange Commission’s rules implementing this exemption took effect, many states used the interim period to enact crowdfunding exemptions of their own.
Although most of these exemptions aim to increase small businesses’ access to capital while still providing adequate investor protection, the exemptions differ greatly in their individual applications. Consequently, a comparison of these exemptions provides a useful analysis of effective regulation in an area of the law new to all players. This Article provides a survey of several state crowdfunding exemptions, focusing on critical characteristics that affect the success of the offering. This Article argues that many of the existing state exemptions fail to effectively help companies raise capital or protect investors against fraud, but instead are overly restrictive in their financial restraints while being too lenient in their investor protection measures. It then suggests a state exemption framework intended to better serve the companies and investors utilizing crowdfunding exemptions.
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Annalise F. Perry, Strict in the Wrong Places: State Crowdfunding Exemptions' Failure to Effectively Balance Investor Protection and Capital Raising, 38 Campbell L. Rev. 267 (2016).