Washington State Crowdfunding Law in Jeopardy?

The SEC has proposed amendments to Rule 147.

The trouble is, the proposed rules would take away one of the federal law support beams for Washington State’s equity crowdfunding law.

Our statute requires compliance with Section 3(a)(11) of the Securities Act of 1933, as amended, and Rule 147, and the SEC has proposed that Rule 147 no longer be a safe harbor under Section 3(a)(11), but its own stand-alone exemption.

Section 3(a)(11) prohibits offers and sales to persons outside of the state of the local offering. The new Rule 147 would only prohibit sales, not offers. This is great. It means that companies crowdfunding could advertise on the Internet without having to worry about their advertising crossing state lines. They just couldn’t ultimately take money from someone who doesn’t live here.

But because our statute requires compliance with both Rule 147 and Section 3(a)(11)–if the SEC’s proposed rules are adopted as proposed–Washington companies would not be able to take full advantage of the new Rule 147. Plus, they would no longer have a safe harbor under Section 3(a)(11) to rely upon.

Here is what the SEC said about this quandary in the proposed rules:

If we were to adopt a rule in substantially the form proposed today, we believe that states that currently have statutes and/or rules that require compliance with Securities Act Section 3(a)(11) and Rule 147 would need to amend their provisions in order for issuers to fully avail themselves of the new rule.

The SEC’s proposals have a lot of good in them, and I think they should be adopted, but not as a replacement to the existing Rule 147 safe harbor.

Once the SEC’s new rules are in place, the Washington State legislature will want to amend our crowdfunding law to take full advantage of it.

But statutory amendments sometimes take years to get through, if ever.

We should write comment letters to the SEC asking them not to do this.

I will write a draft letter and share it.

We have until January 11, 2016 to submit comments.

Here are instructions on how to submit comments:

DATES: Comments should be received by January 11, 2016.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments: • Use the Commission’s Internet comment forms (http://www.sec.gov/rules/proposed.shtml); • Send an e-mail to rule-comments@sec.gov. Please include File Number S7-22-15 on the subject line; or • Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments: • Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-22-15. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method.

The Commission will post all comments on the Commission’s website (http://www.sec.gov/rules/proposed.shtml). Comments also are available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between the hours of 10:00 am and 3:00 pm. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

Download PDF
  • Joe, the post isn’t sufficient clear for those of us without a law degree. Is the problem the specifics in the law calling out “Rule 147, 17 C.F.R. Sec. 230.14717 C.F.R. Sec. 230.147” as opposed to “Rule 147”?

    • Thanks Luni.

      I am going to write a comment letter and share.

      Basically, we don’t want the SEC to do anything that would require us to amend our statute.

      • OK, but what specifically is wrong with the statute and/or the IRS action that make the two incompatible?

        • Our statute requires compliance with both 3(a)(11) and Rule 147. Now the SEC is going to disentangle Rule 147. It is no longer going to be a safe harbor under 3(a)(11). Compliance with both post these rule changes will not be possible (if adopted as proposed)–but our statute requires compliance with both. So our statute will need to be amended.

          • Thank you. That is clear. I suggest updating the post above to say that.

            Meanwhile, seems an opportunity to fix Washington’s crowdfunding law in 2016. Would be nice to have something that people can actually use.

          • Agree. Thanks for your comments.

    • Luni, here is one comment letter on this point: http://www.sec.gov/comments/s7-22-15/s72215-2.pdf