SEC CorpFin Head Urges ‘Principled’ Approach to Investor Verification

For all the excitement among retail investors for the new investment options made available to them by the JOBS Act, professional investors and investment bankers have for the most part reacted coolly to the new opportunities to raise capital and make investments in a more open and broadly marketed manner. Part of this is due to the disintermediating effect of crowdsourced capital on the traditional investment banking model, as well as to the skepticism among professional investors that the investment wisdom of the crowd is anything but wise. But even among the finance professionals for whom the JOBS Act represents a true opportunity to expand and democratize capital formation for small businesses, there is significant doubt that the Act can effectuate the explosion of capital formation the crowdfunding evangelists postulate. Much of the doubt is a result of the “give with one hand and take away with the other” approach that Congress and the SEC have taken in the promulgation and implementation of the Act. In freeing up the public to more widely participate in direct corporate investments, the Feds also sought to strengthen investor protections.