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1) Funding portals will be permitted to curate and vet companies subjectively
2) Companies do not have to perform ongoing audits or financial reviews
3) No upfront audited financial statements for first-time issuers raising $500,000 – $1 million
4) Platforms have the right to take small stakes in the companies they help raise money for as compensation
5) Platform liability concerns not addressed opening the door for litigators to go on “fishing expeditions”.
The term “the devil is in the details” couldn’t be more applicable. SeedInvest raised this issue two years ago in “Equity Crowdfunding Rules: The Good, The Bad and The Ugly”. This concern was “The Ugly” and it still is. According to the statute, an issuer has the burden of proof to prove that that their statements were not materially misleading and platforms are on the hook for anything the company says or omits. As we all know, startups are risky and a high percentage of them fail. We are concerned that this clause will cause litigators to go on “fishing expeditions” and go after both issuers and platforms once failures do occur. Our comment letters regarding this issue were cited six times in the final rules and the SEC very expressly rejected our pleas to address this.
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