This week, the Crowdfund Intermediary Regulatory Advocates (CFIRA), of which Funding Launchpad is a founding member, submitted recommendations to the Securities and Exchange Commission on general solicitation under the JOBS Act, including recommendations on safe harbors for investment adviser issues, fraud, crowd commentary, peer-to-peer lending, and matching.
To back up a step, a “safe harbor” is generally a rule established by the SEC which provides, well, a safe harbor for persons seeking to comply with the securities law. They generally take the form of “so long as companies only do A, B and C, and provided that they avoid doing X, Y, and Z, then they will not be deemed to be in violation of such-and-such securities law.” It doesn’t mean that X, Y or Z necessarily “do” violate the law – those activities remain ambiguous and subject to case-by-case analysis. Thus, safe harbors don’t eliminate ambiguity or envelope-pushing. But, when reasonable safe harbors are provided, issuers tend to use them rather than pushing the envelope and risking trouble. This reduces uncertainty for market participants, and means the SEC spends less of their time scrutinizing transactions.
We and the other members of CFIRA believe that robust safe harbors are essential for clarifying what crowdfunding intermediaries can and cannot do without violating broker-dealer laws, investment adviser laws, and other such legal landmines. The letter we sent to the SEC this week seeks clarification regarding such basic, fundamental questions as what parameters platforms may adopt to screen issuers and what user-generated information can be publicly displayed on the platform. It shows how legally complicated and unclear the entire landscape is, and why CFIRA has the potential to play such an important role in the shaping of the rules surrounding the JOBS Act.