Great question! This topic aligns closely with CfPA's policy platform, and here is our perspective on the matter.

Disclosures to Issuers

Issuers must receive clear and complete disclosures regarding portal fees, privacy policies, and the use of crowdfunding vehicles. Portals should be required to provide complete, prominent, plain English disclosures regarding all of the following issues:

i. When use of a crowdfunding vehicle is required by the portal.

ii. All fees charged by the portal, including fees charged by third-party service providers required by the portal.

iii. A reminder that the issuer is responsible for the content of the Form C and the implications of allowing the portal to file on its behalf, including the risks of filing an incomplete or noncompliant Form with the SEC.

iv. Their annual reporting requirements, including the requirement to maintain GAAP financials and additional reporting requirements when a crowdfunding vehicle is used.

Background

We have observed that many crowdfunding issuers have a limited understanding of what they are signing up for when they decide to raise funding using this tool. Unfortunately, the intermediaries are incentivized to de-emphasize the complexity of conducting a regulated securities offering so that they can grow the volume of offerings on their platforms. Many issuers have no understanding that the platform may be using a crowdfunding vehicle to receive investments and that this results in their investors getting something different from what they were expecting. Also, platforms provide simplified forms to expedite the process of preparing a Form C, often resulting in a non-compliant or inadequate Form C. We have also observed non-transparent fee structures in which the issuer may not be told about fees that will be charged to investors.

Requested Change

We believe that the widespread lack of understanding by issuers of what they are signing up for when they choose to conduct a Reg CF offering could be addressed if the SEC provided a standard set of disclosures that address these issues and require that the intermediary be transparent about its fees and use of crowdfunding vehicles.

Statutory Authority

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