Funding Portals

The JOBS Act of 2012 allows retail investors to purchase unregistered securities offered through crowdfunding websites. The Act limits the amount that investors can invest in a 12-month period based on income and net worth. The SEC and FINRA proposed rules on crowdfunding on October 23, 2013. Comments were due on February 3, 2014.

FINRA’s proposed rules, which are designed to be consistent with the SEC\'s proposal, seek to ensure that the capital raising objectives of the JOBS Act are advanced in a manner that is consistent with investor protection. Pending adoption of the SEC’s proposed rules, no JOBS Act crowdfunding is lawful.

Under the Act, a private company raising capital under the crowdfunding exemption must use an intermediary that is either a registered broker-dealer or a funding portal. Any broker-dealer or funding portal that engages in crowdfunding must be registered with the SEC and FINRA.

Funding portal activities will be more limited than broker-dealers. For example, a funding portal may not:

  • solicit transactions for securities displayed on its website or portal
  • compensate anyone for soliciting investors or pay compensation based on the sale of securities on its website or portal
  • hold customer funds or securities
  • offer investment advice or recommendations

FINRA’s proposed rules reflect the limited scope of activity permitted to funding portals. The proposed rules address a number of topics, including:

  • the membership application process
  • fraud and manipulation
  • just and equitable principles of trade
  • compliance with the JOBS Act, SEC and FINRA rules
  • preventing bad actors from engaging in crowdfunding

Titlesort descendingTypeDate
Regulatory Notice 13-34Notices10-23-2013
SR-FINRA-2013-005Rule Filing01-10-2013
Regulatory Notice 12-34Notices07-05-2012