I was asked recently to draft a Crowdfunding statute for Texas, to augment the proposals made by the Texas State Securities Board. Having done that, I have turned my Texas statute into a model law that could be used by any state, including the handful that have already adopted Crowdfunding in one form or another. The model law is a PDF here.
I drafted the model statute with these goals:
- To balance the interests of investors, entrepreneurs, and state securities regulators;
- To reflect the lessons I’ve learned over more than 30 years in the capital formation business;
- To capture the current best practices of states and the Federal government;
- To introduce new concepts that will allow Crowdfunding to flourish; and
- As a Jeffersonian believer in Federalism, to leave space for state-by-state experimentation.
These are some of the key features:
- The statute relies on portals that will be registered with state securities regulators. The same portal could be registered in more than one state and, indeed, could male offerings at the Federal level as well.
- The statute imposes disclosure requirements that mirror the disclosures typically made in private placement transactions.
- The statute expands the concept of “control persons.”
- The statute requires that state securities regulators have 24/7 real-time access to any material shown to prospective investors.
- The statute introduces and expands the Federal “bad actor” concept.
- The statute raises investment limits for truly local projects, to encourage local investing.
- The statute expands the definition of “accredited investor.”
- The statute allows issuers to raise up to $2 million per offering.
- The statute prohibits issuers from seeking to limit their liability for fraud or misrepresentation.
- The statute gives state regulators broad latitude to modify in accordance with local conditions.
Everything is about balance. Without overwhelming issuers with bureaucracy, the statute protects investors and creates an ecosystem where capitalism can flourish.