Since Kansas enacted the first blue sky law in 1911, securities regulation has sought to protect investors from fraud and speculation. Historically, this meant precluding substantial numbers of small businesses from raising capital in the form of equity investments. In order to facilitate small-business capital formation, in 2012 the federal government passed the Jumpstart Our Business Startups Act (JOBS Act). Although Title III of the JOBS Act required the Securities and Exchange Commission to undergo rulemaking to allow for small-dollar equity investments, the agency dragged its feet. In the interim, states anxious to jumpstart their own economies took the initiative. Legislation has now been enacted in over half the states. Although a laudable attempt to make raising capital easier, this legislation potentially provides an avenue for fraudulent offerings and significant investor losses. This Comment reviews the historical context in which state crowdfunding exemptions have been passed and compares enacted state laws to the JOBS Act’s requirements. It argues that in order to effectively prevent fraud while enabling small-business capital formation, states should adopt specific protection measures in their crowdfunding laws. These prophylactic measures, including requirements on both issuers and intermediaries, as well as protections for investors, promise to better help business while also protecting investors.
Christopher H. Pierce-Wright,
State Equity Crowdfunding and Investor Protection,
91 Wash. L. Rev.
Available at: https://digitalcommons.law.uw.edu/wlr/vol91/iss2/21