In a long-awaited decision, the Securities and Exchange Commission voted unanimously to propose rules under the April 2012 Jumpstart Our Business Startups Act to permit companies to offer and sell securities through crowdfunding, an Internet-based form of corporate finance. The SEC is seeking public comment on the proposed rules and then will determine whether to adopt them. Concerns about the proposed rules run the gamut. Some view the rules as imposing unduly, burdensome regulations, while others say the rules establish an overly permissive framework and open the door for potential fraud.
Crowdfunding, a term widely used in corporate and real estate finance arenas, had a broad, generic meaning until the Oct. 23 decision. In general, the term refers to an evolving method of raising capital on the Internet, in which members of the Internet community or “crowd” share information about ideas or business with each other. The information is used to decide whether to provide funding based on the collective “wisdom of the crowd.”
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