Thank you for the thoughtful question! This issue aligns with CfPA's policy priorities, and here is our position on it.

Disclosures to Investors

It is important that investors understand what they are getting when they invest and the potential tax implications of those investments. The SEC should provide portals with standard disclosures regarding the following:

i. details of what an investor is receiving in exchange for their investment

ii. a warning about potential tax issues in the form of a general overview and the recommendation to consult one’s tax advisor

iii. whether the investor is investing directly in the issuer or a crowdfunding vehicle

iv. if the investor is investing in a crowdfunding vehicle, what this means in terms of fees, costs, tax treatment, governance rights, ongoing record-keeping requirements, etc.

v. the importance of reviewing the Form C and a prominent link to view the Form C with all Form C pdfs clearly labeled.

Background

There is very little standardization in how crowdfunding portals provide disclosures to investors on their platforms. We have observed that on some platforms, it is very difficult to find the Form C and that the Form C is provided in a format that makes it very challenging for a potential investor to review. Also, many investors on Reg CF platforms have no idea that when they invest they may be signing up for years of complicated tax disclosures that will cost them more in accounting fees than they can ever expect to make on their investment. Disclosures about what an investor is actually getting when they invest are also quite inconsistent. Many investors hit the “invest now” button without knowing what they are actually buying – are they investing in equity or debt? What would have to happen for them to actually make money on their investment? Is the investor investing directly in the issuer or in a crowdfunding vehicle? We have spoken to issuers and investors that had no idea that investors were investing in a Delaware Series LLC owned by the intermediary and not actually investing in the issuer directly.

Requested Change

We believe that the widespread lack of understanding by investors of what they are getting when they invest and the ongoing tax and record keeping requirements associated with their investment could be addressed if the SEC provided a standard set of disclosures that address these issues and require that the Form C be presented in a prominent and user-friendly format.

Statutory Authority

The SEC has the authority under the JOBS Act to adopt the requested addition to the disclosure requirements for intermediaries.