May 01, 2012
Congress, We Have a Problem
Posted by Usha Rodrigues

There's a basic problem with the wording of the crowdfunding exemption in the JOBS Act.  Here's the language at issue (from Sec. 302 of the JOBS Act), amending Section 4 of the 1933 Act to provide an exemption from registration for:

(6) transactions involving the offer or sale of securities by an issuer (including all entities controlled by or under common control with the issuer), provided that—

(B) the aggregate amount sold to any investor by an issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, does not exceed—

(i) the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and

‘(ii) 10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000

Did you catch it?  No?  I was just innocently trying to work through the numbers, and posited a hypothetical investor who had a net worth of $900,000, no job, and annual investment income totalling $70,000.  Let's call her Susan.  It's not too outlandish a hypothetical--Susan is a well-off retiree who owns her own home.  So, into which category does Susan fall? 

Let's see.  (B)(i), because her annual income is less than $100,000...And (B)(ii), because her net worth is more than $100,000. 

Wait, that can't be right, can it? How much can Susan invest?  10% of her net worth or 5%? 

Uh, Congress?  Hello?

I'm not the first person to catch this mistake.  Joan tells me it was discussed at the crowdfunding conference she recently attended.  But it's so basic it makes me wonder about Brett's pessimistic story number two...

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