SEC Issues Crowdfunding Investment Guidelines

On February 16th, the U.S. Securities and Exchange Commission (the “SEC”) issued an investor bulletin explaining their recently issued guidelines for allowing individuals to invest in “early-stage and start-up” businesses that offer securities via a crowdfunding intermediary.

In the bulletin, the SEC defines crowdfunding as “a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.”

In the bulletin, the SEC acknowledges that making investments via a crowdfunding site can be risky.  Therefore, they have established criteria limiting the amount that an individual investor can invest via a crowdfunding intermediary.  Those guidelines are based on a potential investor’s net worth and annual income.

For example, according to the bulletin, under the new guidelines, if a potential investor’s “annual income [or their] net worth is less than $100,000, then during any 12-month period, [s/he] can invest up to the greater of either $2,000 or 5% of the lesser of [their] annual income or net worth.”

Additionally, if a potential investor’s “annual income  or net worth are equal to or more than $100,000, then during any 12-month period, [s/he] can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.”

The bulletin then provides numerous helpful examples explaining the application of its guidelines and describing the risks associated with making these early stage investments.

Click here to view the SEC bulletin.



About docjonz

I am an Associate Professor of accounting at Hofstra University in Hempstead, NY. Additionally, I have more than 30 years of professional accounting experience in various capacities including auditing, accounting standard setting and corporate accounting policy.
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