Wisconsin’s equity crowdfunding law, which was unanimously passed by the legislature and signed by Gov. Walker last November, officially took effect on June 1, 2014.  Wisconsin is one of 11 states that has “taken matters into its own hands” by passing its own crowdfunding laws while the federal rules are still pending.

President Obama signed the JOBS Act back in April of 2012, which was intended to make it easier for small businesses to raise capital.  One provision required the SEC to implement rules for a new crowdfunding exemption from the SEC requirements by the end of 2012.  Despite this requirement, no federal rules have been issued yet.

While securities law is normally a federal issue, the SEC has a longstanding “intrastate offering exemption” that allows companies to sell securities within their home state without registering the offering with the SEC.  States, like Wisconsin, have used this exemption to make their own crowdfunding laws ahead of the federal rules.  However, these state crowdfunding laws apply only to intrastate offerings.  This means that Wisconsin’s crowdfunding law can only permit companies formed in Wisconsin to solicit Wisconsin investors.  Interstate investments, such as an Illinois resident investing in a Wisconsin company, are still governed by federal law and thus are impermissible until the federal rules are released.

The SEC’s Compliance and Disclosure Interpretations from April 11, 2014 (“CDIs”) highlights some of the challenges of intrastate offerings.  For one, the intrastate exemption requires that securities are only offered and sold to in-state residents.  The CDIs note that it would likely be a violation of the intrastate exemption to use the company’s home website or social media sites, such as Facebook and Twitter, to advertise the offering, since these mediums will almost certainly reach residents of other states, and thus be an “offer” to an out-of-state resident.  Eliminating free modes of advertising such as Twitter and Facebook for intrastate offerings could lessen the appeal of crowdfunding until the federal rules are released (and thus interstate investments are permissible) since the primary purpose of crowdfunding is to eliminate the expense of raising capital.

So, at present, crowdfunding puts those who use it at high risk of violating laws until the SEC issues some additional rules.

This article was prepared with the help of Kelsey O’Gorman.

  • Bill G Wilminton NC

    The little guy or as the big guys call him THE NONACCREDITED INVESTOR we must protect this little guy from himself. This little guy can go and buy a car with no supervision or even funnier go into any convenience store and blow his entire paycheck on the LOTTERY TICKETS but can he get in on the ground floor of the newest best money making biz since Subway Sandwiches no no no only people who already have a few million are ALLOWED. CROWDFUND IS THE WAY FOR THE LITTLE GUY.

    • I can’t disagree with you: government prohibits certain scams and encourages others. In this case, the little guy may actually strike it rich (ie at least get his money back) once in a thousand times, but you have a point, that may still be better odds than the lottery!

      • Bill G Wilminton NC

        Hi Tom, this is all about THE PRIVATE FORMATION OF CAPITAL. The banks do not want this because then THEY will not be needed. Also this Crowdfunding would promote saving money for the next opportunity so the spend spend spend borrow borrow borrow would diminish and we would become save save save and invest invest invest haha back to the roots of our once great nation. NC which is the headquarters of Bank of America and loaded with bank lobbying just missed the second year for passing NC Crowdfunding HB680 Jobs Act Bill. While Michigan and Wisconson just shot it through. Got a question was Bernie Madoff an oriental carpet salesman haha lol.

    • Bill, Thanks for your thoughts. I’m thinking you have a good understanding of the issues you mention regarding the big banks, since you have one there.

      I’m just not sure what is going to happen to the little guys who end up following a crook. That will happen in Wisconsin. I think it is just as wrong to take a little from many as a lot from a few.Just remember that before regulation is when the big trusts formed. Back in the good old days, when we had the equivalent of crowdfunding, it was all the big trusts and few little guys ever made it big. I think crowdfunding can work, but there should be some regulations that prohibit the capital creator from just walking off with the funds.

      I’ll consider your thoughts as we follow this and hopefully do an update later this year. Thanks again!

      • Bill G Wilminton NC

        Tom, Thank you for getting back to me.

        We used to be a nation of laws and white collar crime mandated a prison sentence. Take the countrywide bank the owner stole 21 million and paid a fine of 1 million with no jail time. Take the ex gov of NJ… Corzine of Global…. he stole 1 billion of peoples deposits in escrow accounts and he is still not charged and giving speeches and starting a new co. Haha comical ! There is no amount of legislation that can legislate integrity. NO AMOUNT…….

        There is a capital loss risk for entrepreneurs and for investors. The idea that the little people cannot make good investment choices is just a scapegoat story to prevent the private formation of capital to explode into billions and billions of investment dollars. So the story to the PUBLIC is WE MUST SAVE YOU.

        Crowdfunding is the way for the little guy to get in on the ground floor.of the next Subway Sand Shoppe. The investor in this sandwich giant who put up 1000 dollars twice (as the first G was lost) is know worth 1.5 billion.

        In NC the investment ceiling is 2000 bucks. If a man makes 5 of these investments and only one hits….. maybe it is the new Subway.

        You are concerning yourself with The Big Trusts of the past while the NOW entrepreneurs are saying fageddaboudit and going right to KICKSTARTER and raising millions and millions with donations and given a HAT.

        Look up The Coolest Cooler on Kickstarter they were looking to raise 50 K they are now up to 8 million. Americans are natural born investors and love fo feel involved in something that makes it big or has a benefit to society or JUST to help a guy get his dream going.

        Government needs to get out of the way and let the capital river flow, just as it is THRU CROWDFUNDING AROUND THE WORLD before we fall behind this great new vehicle for raising capital.

        Thanks for Listening Bill G