Will Florida Authorize Intrastate "Crowdfunding" This Year?

The online money-raising strategy that has come to be called "crowdfunding" began as a way to help artists, musicians and others finance creative projects. On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act, part of which allows entrepreneurs to sell interests in their businesses the same way. This requires significant revision of federal securities laws, a process the Securities and Exchange Commission (SEC) has started with rulemaking. In 2013 the SEC proposed rules, but it has not yet finalized them. Some states have chosen not to wait for implementation of the JOBS Act and amended their state securities laws to permit the practice only within their borders.

Last year a bill was filed in Florida that would have created exemptions from Florida's investor protection laws and allowed "crowdfunding platforms" to register with the Office of Financial Regulation (OFR) and offer alleged investment opportunities provided both the investors and the offerors reside in Florida. HB 1299/SB 1596 died in committee last year. Proposed legislation to authorize crowdfunding is back in 2015. Representative David Santiago (R-Volusia) is sponsoring HB 275. The bill has fewer committee references than last year, but as yet has no Senate sponsor. HB 275 abandons language used in the proposed legislation last year, but is substantively the same. It would create exemptions from Florida's securities registration requirements in Fla. Stat. § 517.07 for certain issuers, represented by "intermediaries." An issuer may not be an investment company as defined in the Investment Company Act of 1940 (15 U.S.C. § 80a-3 et seq.) and must, among other things, create an escrow in Florida for deposit of investor funds. Intermediaries must comply with notice-filing requirements for exemption from registration as a broker-dealer and must maintain certain books and records. Intermediaries may not offer investment advice nor solicit purchases of offerings beyond displaying them on a website.

The North American Securities Administrators Association (NASAA) has expressed skepticism about crowdfunding and questioned the ability of the JOBS Act to create new jobs and stimulate the economy. Guidance issued by the NASAA points out that the participating businesses are excused by the JOBS Act only from registration of their securities offerings. They are still subject to all disclosure requirements of federal and state securities laws. NASAA also reminds businesses that misrepresentations or material omissions in connection with sale of interests in the business can subject them to lawsuits for securities fraud and to administrative enforcement actions. Moreover, failure to meet the precise requirements of the exemption can subject the business to liability for sale of unregistered securities, which is a felony in Florida.

Only time will tell if Florida's leaders can be convinced by crowdfunding advocates that these risks do not outweigh the benefits.