The JOBS Act: An Exchange Limited To Accredited Investors

William Carleton, Contributing Editor, VCExperts

We talk a bunch on this blog about the exclusion of average Americans from private securities offerings.

Big picture: financing America's innovation economy is left to angel investors and the entrepreneurs themselves.

Investment crowdfunding for non-accredited investors was supposed to have been enabled by Title III of the JOBS Act. In fact, when he signed the legislation last April, President Obama specifically called out that "the American people," ordinary Americans, would be a fresh, new source of capital for America's entrepreneurs.

As we further analyze the disparate provisions of the JOBS Act (the legislation was admittedly a hodge podge of disparate bills, many of which had already passed the House separately at separate times; there is no illusion that any sentient being was arranging the different parts into a consistent whole), it has become clearer that the meaningful provisions to further crowdfunding in America are contained, not in Title III of the JOBS Act, not in the provisions to which President Obama was referring at the signing ceremony, but instead in Title II.

And Title II is all about accredited investors. Offerings that are limited to accredited investors.

While under Title II the ban on general solicitation and general advertising is to be lifted for Rule 506 offerings where all purchasers are accredited, under Title III, tweeting, engaging on Reddit, any other online activity or discussion is forbidden.

While under Title II, investors remain responsible for their own diligence, under TItle III, any possibility of crowd diligence is foreclosed. Instead, there are so many layers of top-down disclosure requirements, legal and other fees will eat up most of the largest offerings permitted.

It's in this context, at this juncture in the story where one can clearly see, as the unintended design of the JOBS Act begins to reveal the implicit assumptions lawmakers and regulators have about private investing, that an item surfaced by Broc Romanek recently on his blog strikes me as telling.

Romanek cites and links to a working list of recommendations that an advisory committee to the SEC, the Advisory Committee on Small and Emerging Companies, has put forward in anticipation of an open meeting to be held February 1.

Four recommendations-in-development are listed, and this is the one that strikes me:

"Encourage the establishment of an exchange limited to accredited investors where disclosure requirements for listed companies would be appropriately limited in light of the absence of retail investors."

"Retail investors." Not "ordinary Americans," not "the American people." But retail shoppers, consumers, sheep.

Folks, are the rules for the investment crowdfunding exemption under Title III being written to let everyone participate in backing the innovation economy, or is it being set up for financial firms to push products to "retail investors?"

Photo: Mr. T in DC/Flickr.

William Carleton

Bill is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He blogs every day at