As the Securities and Exchange Commission’s release of the new crowdfunding rules begins to be analyzed by the investment community, Bankless Times is speaking with additional experts to get their thoughts on what those rules mean for the industry.
Ms. Zwick is the Senior Vice President of Alternative Custody Services at Millennium Trust Company. Established in 2000, Millennium Trust Company provides alternative custody sources to institutions, advisors and individuals. They currently have more than $15 billion in assets under custody.
Mr. McLaughlin is the Head of VIA Folio, a marketplace offering frictionless investment opportunities in many types of private placements. Those opportunities can be reviewed and managed alongside an investor’s stocks, bonds and ETFs in a Folio Investing brokerage account.
Intermediary vetting responsibility
“We recognize that platforms and portals will need the ability to screen in order to manage risks, in a similar way that existing private placement platforms do.
There are certainly risks at many levels. Consider, for example, how high loan default rates affected the reputation of early peer-to-peer lenders. Investors tended to shy away from platforms with high default rates. As a result the P2P lenders tightened their lending requirements to seek only high quality borrowers.
It’s in a platform’s best interest to vet as well as to ensure that the risks associated with every investment on the platform are properly disclosed.
We think that third-party vetting of issuers is essential for creating trust with investors, regardless of the offering rules used by the issuer. This is an important aspect for platforms that utilize our services, just as we vet the issuers that we directly work with.
Encouragement of secondary market creation
We think it is extremely important in the investor decision making process to know that there will be at least a safety valve for them if they need the money that is invested before it would pay out on its own. So, enabling secondary market transactions in securities issued under this set of rules is important to the success of the fundraising by companies that use them.
VIA Folio leverages our online brokerage custody and transaction processing and in doing so, we lower costs and create the opportunity for better prices.
“(A) secondary market is probable. Given how markets typically mature I think that’s probably at least a year away.
Maximum raise limits
Our understanding is the federal intrastate exemption proposed raising the provision from a maximum raise of $1M to $5M in a 12 month period. The proposal that would raise the limit from $1M to $5M is in relation to Rule 504 of Regulation D which provides an exemption for registration requirements of federal securities laws. Essentially, companies would be able to rely on the exemption when they offer and sell up to $5M instead of $1M.
The $1M limit will enable many small companies to get started with their fundraising.
For some it may be enough money, but for many others the ability to leverage the relatively new Reg D Rule 506c and Reg A Tier 1 and Tier 2 offering registration exemptions to raise significantly more money from accredited and non-accredited investors will also be very important as they grow.
Platforms compensated in equity
Folio is open to the concept of platforms, including ours, being compensated with equity instead of cash, where it makes sense for both parties and it is good to see regulations enabling such market driven decision making.