Securities Advisory Releases

Advisory Release AR-11-06:

Crowdfunding and State Securities Regulators

The Commissioner of Securities is issuing this advisory release to alert readers about certain bills in the United States Congress which could impact both small business funding and securities regulation in this State. As explained below, Secretary of State Robin Carnahan and her securities regulatory staff are working to guarantee that these bills open the financing markets to Missouri’s small businesses while maintaining the States’ critical role in investor protection.

Recently, two bills were introduced in Congress designed to provide entrepreneurs greater access to crowdfunding. Crowdfunding is an online, typically grass-roots, money-raising strategy that allows the public to use websites to contribute small amounts of money to help artists, musicians, filmmakers and other creative people finance their projects. Importantly, crowdfunding financing has been applied to small businesses and start-ups, facilitating their attempts to get their ventures off the ground.

The two bills — that is, the Entrepreneur Access to Capital Act (H.R. 2930) and the Democratizing Access to Capital Act of 2011 (S.1791) — are designed to strengthen the economy by allowing small businesses to offer their securities over the Internet, allowing for expansion or hiring. These bills would affect not only Federal law but also state securities law. Specifically, both bills contemplate limiting state securities regulators’ ability to monitor offerings of securities within their states’ boundaries, thereby potentially hampering state enforcement efforts.

Knowing how important small businesses are to job growth and to our nation’s economy, Secretary of State Carnahan has joined with the a bipartisan group of eight secretaries of state in a letter to members of Congress supporting H.R. 2930 and S.1791. (Read the letter here .) But Secretary Carnahan and her colleagues caution that these bills should not weaken investor protection by preempting state securities regulators’ authority to police Internet offerings conducted in their states.

In order to preserve the States’ ability to protect their investing citizenry, the Commissioner of Securities is working with the North American Securities Administrators Association in developing a model rule which state securities regulators can adopt to responsibly encourage small business capital formation through a crowdfunding exemption. Secretary Carnahan and her staff will continue to work to ease Missouri small businesses’ access to financing while maintaining strong investor protection for Missouri’s citizens.

If you have any questions, you may call the Securities Division at (573) 751-4136.

December 1, 2011