Perhaps one of the most interesting aspects of the new Title III Equity Crowdfunding Rules is Rule 303(c).
Rule 303(c) of Regulation Crowdfunding requires an intermediary to provide, on its platform:
- Channels through which investors can communicate with one another and with representatives of the issuer about offerings made available on the intermediary’s platform.
- An intermediary that is a funding portal is prohibited from participating in communications in these channels.
- Rule 303(c) also requires the intermediary to:
- make the communications channels publicly available;
- permit only those persons who have opened accounts to post comments; and
- require any person posting a comment in the communication channels to disclose whether he or she is a founder or an employee of an issuer engaging in promotional activities on behalf of the issuer, or is otherwise compensated, whether in the past or prospectively, to promote the issuer’s offering.
To my knowledge, this will make crowdfunding offerings unique. I am not sure of another type of securities offering exemption or registration process that has these types of requirements built into it.
The idea behind these communication channels is that the “wisdom of the crowd” will become known. As the final rules say:
[T]hough communications among investors may occur outside of the intermediary’s platform, communications by an investor with a crowdfunding issuer or its representatives about the terms of the offering are required to occur through these channels on the single platform through which the offering is conducted. This requirement is expected to provide transparency and accountability, and thereby further the protection of investors.
What is nice/no-so-nice about the rule?
- These channels will be on intermediaries’ web sites, not the web sites of companies doing crowdfunding offerings.
- These channels will be open to the public.
- To post a comment, you will have to open an account, but you will not have to be an investor.
- These communication channels do not have to be kept open post-offering.
- The rules “prohibit an intermediary that is a funding portal from participating in any communications in these channels, apart from establishing guidelines for communication and removing abusive or potentially fraudulent communications.”
As far as monitoring the chatter on these channels:
A funding portal can, for example, establish guidelines pertaining to the length or size of individual postings in the communication channels and can remove postings that include offensive or incendiary language. Also, although we understand the reasons for commenters’ suggestions that there should be more privacy or control in the manner in which comments are posted, we believe that aside from intermediaries removing abusive or potentially fraudulent communications, investor protection is better served by providing the opportunity for uncensored and transparent crowd discussions about a potential investment opportunity.
We will have to wait and see how “wisdom of the crowds” develops.