Delay in Crowdfunding Rules Stalls Independent Film Investment Options

The Jumpstart our Small Business Startups Act (JOBS Act), passed by Congress earlier this year, promised new investment opportunities for filmmakers. For the first time, entrepreneurs of all stripes could raise equity financing — not just donations — via crowdfunding sites like Indiegogo. The law was signed by President Obama on April 5, and the SEC was given 270 days to draft the regulations required for its implementation. But, as Robb Mandelbaum in the New York Times reports today, that deadline is likely to be missed, and some believe it won’t be until 2014 before a filmmaker can sell an equity share in his or her picture to an investor via a crowdfunding site.

In an April Filmmaker article entitled “How the JOBS Act Will Transform Independent Film Financing,” Matthew Savare outlined benefits of the new law for filmmakers, including increased access to capital and improved liquidity for investors, which could lead to the creation of a secondary market for film investments. But, as Mandelbaum writes, these benefits could be more than a year away:

The Securities and Exchange Commission appears certain to miss its end-of-year deadline for issuing regulations to put the provision into effect. And with the departure of the S.E.C. chairwoman, Mary L. Schapiro, and three of her top deputies — including two who manage the offices writing the regulations — some in the nascent equity crowdfunding industry worry that it could be 2014 before their line of business becomes legal.

The delay has frustrated many crowdfunding backers. The 270 days that Congress gave the S.E.C. to write the rules “is not a suggested timeline; it is a Congressional mandate,” said Kim Wales, an organizer at Crowdfund Intermediary Regulatory Advocates, a lobbying group formed in April to represent the new industry, in an e-mailed statement. “The S.E.C. answers to Congress, not the other way around.”

While the delay carries the headline, the details of the rules-drafting process found later in the piece are equally interesting. The SEC has requested information campaign statistics from the crowdfunding industry, including platforms like Indiegogo, Kickstarter and RocketHub. (According to the Times, the SEC “spoke with” Kickstarter, while Indiegogo declined to provide information on its business because “it did not want to share trade secrets.”) Additionally, the Times reports, the delay can also be attributed to disagreements between regulators and the crowdfunding industry, which argues that investor protections should not be as stringent for crowdfunded investments as they are for more conventional equities. One such proposed regulation would require issuers raising over $500,000 to provide audited financial statements to investors. From the piece:

Calling the requirement unrealistic, Indiegogo’s [Slava] Rubin said, “There’s no question that this is a massive deal breaker.” He urged regulators to tread lightly. “There’s a lot to do here, but why not let the industry figure it out?” he said. “Along the way there will be some ups and downs, but in the long run, like the Internet, we’ll have created an amazing industry.”