SEC Commissioner Hester Peirce’s sketch of a potential exemption from registration to allow firms to use distributed ledger technology (DLT) to issue, trade, and settle securities could have significant implications—both positive and disruptive—for regulated investment crowdfunding (Reg CF). Here's a breakdown of the potential impacts:

 
🔍 How the DLT Exemption Could Affect Reg CF

1. Creates a Competing Capital Formation Pathway
If the exemption enables issuers to raise capital and trade tokenized securities more flexibly than under Reg CF, it could:

- Draw issuers away from Reg CF, especially those seeking lower compliance burdens or faster execution

- Undermine the utility of funding portals that have invested in compliance infrastructure under Reg CF/Reg A

2. Erodes Investor Protections If Not Carefully Calibrated

Reg CF includes robust investor caps, disclosures, and portal oversight:

- If DLT-based exempt offerings don't include equivalent protections, retail investors may be exposed to higher risks without adequate guardrails.

- This could weaken confidence in retail-facing investment markets broadly

3. Undermines Level Playing Field for Intermediaries

Funding portals must:

- Register with the SEC and FINRA
- Implement anti-fraud procedures
- Adhere to strict communication guidelines

If a DLT-based venue is exempt from similar obligations, it may function like a funding portal or ATS without having to comply with equivalent rules—creating an unfair regulatory asymmetry

4. Tokenization Could Be a Tool—Not a Threat—If Integrated

If the exemption framework evolves to support tokenized Reg CF securities, it could:

- Enable faster settlement and secondary liquidity for crowdfunding investors
- Enhance investor engagement through programmable assets, wallet integration, and smart contracts
- Lower custody costs and improve capital stack transparency

🧭 Strategic Implications for the Regulated Crowdfunding Industry

If Not Integrated:

- Funding portals may lose deal flow to lightly regulated DLT venues

- Investor confusion could rise as new platforms emerge without clear SEC/FINRA alignment

- Reg CF infrastructure could be marginalized, despite years of ecosystem-building

If Proactively Integrated:

- Portals that embrace DLT for post-issuance management or settlement could lead innovation

- Reg CF rules could evolve to explicitly allow for tokenized securities, with safe harbor language

- SEC could require exempt DLT platforms that target retail to meet Reg CF-like protections
 
✅ Recommendations for Industry Stakeholders and Policymakers

1. Advocate for Harmonization:

Ensure any DLT exemption includes equivalent investor protection standards as Reg CF.

2. Push for Tokenized Reg CF Pathways:

Encourage the SEC to issue guidance or no-action relief for DLT use within Reg CF, especially around custodial tokens, secondary transfers, and smart contract-based compliance.

3. Monitor Market Fragmentation Risk:

Prevent two-tier markets—one regulated (Reg CF), one not—by ensuring oversight parity.

4. Participate in Public Comment:

As the SEC considers exemptive relief, funding portals, investor advocates, and Reg CF issuers should engage directly with the Crypto Task Force’s process.
 
🔗 In Summary

Peirce’s DLT exemption sketch is forward-looking and pro-innovation—but it may unintentionally disrupt the fragile progress of regulated crowdfunding unless protections and standards are aligned. The future could be synergistic, but only with clear boundaries and deliberate coordination.

Note: Commissioner Peirce's thoughts are outlined here: https://www.sec.gov/newsroom/speeches-statements/peirce-iismgd-050825 

From the perspective of the regulated investment crowdfunding (Reg CF and Reg A) industry, the appointment of Paul S. Atkins as SEC Chairman raises both opportunities and questions.

🔎 Perspective from the Crowdfunding Industry:

1. Pro-Market, Pro-Business Philosophy Could Mean Support for Capital Formation. Chairman Atkins has long championed capital formation and reduced regulatory burden, particularly through cost-benefit analysis. This mindset aligns well with the goals of the crowdfunding sector, which seeks to democratize capital access for startups and small businesses. His background suggests he may be open to expanding access to capital for both issuers and investors through mechanisms like Reg CF and Reg A+.

2. Track Record of Favoring Innovation—Positive for Fintech and Digital Asset Integration

Atkins’ role in developing best practices for the digital asset sector suggests he’s not afraid to engage with new technologies.

This could bode well for:

- Tokenized securities
- Blockchain-based cap tables
- Smart contract-based compliance —all areas that the crowdfunding industry is beginning to explore.

3. Potential for Regulatory Rollbacks or Modernization

Atkins has previously pushed for greater consistency and simplification in regulation. That could open the door to:

- Raising Reg CF investment and offering limits
- Reducing duplicative state filing burdens
- Streamlining ongoing disclosure requirements
- Allowing more flexible use of SPVs and follow-on offerings

4. Investor Protection vs. Market Access

However, Atkins' emphasis on cost-benefit analysis and industry flexibility may worry some investor advocates who want stronger safeguards in crowdfunding. There is a delicate balance here. The crowdfunding industry—especially responsible funding portals and associations like CfPA—will need to proactively demonstrate that investor protection and market growth can co-exist.

5. A Chance for Dialogue

Given his extensive experience across SEC leadership roles and international regulatory forums, Atkins is likely to be receptive to policy engagement. This is a valuable opening for the crowdfunding industry to:

- Push for rule modernization
- Advocate for new exemptions or refinements
- Collaborate on digital compliance infrastructure
 
📣 Final Thought:

The appointment of Paul S. Atkins could signal a more business-friendly, innovation-minded SEC. The crowdfunding industry should engage early and often, presenting data, success stories, and constructive proposals to shape a regulatory environment that protects investors without stifling innovation. If navigated well, this could be a turning point for scaling regulated crowdfunding in the U.S. capital markets.

#regulatedinvestmentcrowdfunding

The phrase "regulation by enforcement" is a critique often used in the crypto industry (and other sectors) to describe a regulatory approach where the SEC (or another agency) enforces laws and rules through lawsuits and penalties rather than through clear, proactive rulemaking. This differs from "enforcement of regulations" in significant ways:

1. Regulation by Enforcement

No Clear Rules in Advance: Critics argue that the SEC does not provide explicit guidelines on how crypto firms should comply with securities laws.

Legal Actions Instead of Rulemaking: Rather than issuing tailored regulations or engaging in formal rulemaking processes (such as public comment periods), the SEC takes action by suing companies or imposing fines.

Uncertainty for Businesses: Companies may not know they are violating the law until they face enforcement actions, creating uncertainty and chilling innovation.

Retroactive Punishment: This approach may penalize companies for actions they took before clear guidance existed.

2. Enforcement of Regulations

Based on Established Rules: In a traditional regulatory framework, enforcement follows well-defined rules that were developed through legislation or a formal rulemaking process.

Predictability & Compliance Pathways: Businesses know the compliance requirements in advance, allowing them to operate within a clear legal framework.

Preventative Rather Than Punitive: Regulation aims to guide compliance before violations occur rather than relying on enforcement as the primary mechanism.

Why Is This a Big Deal in Crypto?
The crypto industry argues that securities laws were not designed for digital assets, yet the SEC applies decades-old rules without providing specific new regulations tailored to crypto.

Major cases, such as those against Ripple, Coinbase, and Binance, highlight how the SEC is shaping crypto regulation through litigation rather than clear rulemaking.

The SEC contends that it is simply enforcing existing securities laws, but critics say this approach forces compliance through the courts instead of creating transparent, predictable rules.

Bottom Line
Regulation by enforcement means creating de facto policy through lawsuits and penalties rather than formal rules, whereas enforcement of regulations implies applying already established and clearly defined legal standards. The debate is whether the SEC should issue clearer guidance or continue its current strategy of enforcement actions.

The costs associated with a Regulation A (Reg A) offering are generally lower than those for a traditional S-1 filing (also known as an Initial Public Offering, or IPO). However, the S-1 process has its own set of advantages, such as access to a broader pool of institutional investors and the ability to list on a national exchange. Here's a breakdown of the cost comparison between a Reg A offering and an S-1 IPO:

1. Filing and Regulatory Fees

Reg A (Form 1-A) Filing Fees:

The filing fee for Form 1-A (Reg A) is calculated based on the amount of securities being offered. The SEC charges a fee of $118.20 per $1 million in securities offered.
Example: For a $75 million Reg A offering, the filing fee would be about $8,865.

S-1 (IPO) Filing Fees:

The filing fee for an S-1 registration statement is based on the offering amount as well. The SEC charges $129 per $1 million of securities offered.

Example: For a $75 million S-1 offering, the filing fee would be about $9,675.

Comparison: The filing fees for Reg A and S-1 are relatively close, but an S-1 filing can be marginally more expensive. The real cost difference comes from other areas, such as the legal and underwriting fees.

2. Legal and Accounting Fees

Reg A Legal and Accounting Fees:

For Reg A offerings, legal and accounting fees tend to be lower than those for an IPO because the process is less complex. The company is not subject to the same level of regulatory scrutiny, and the disclosure requirements are less stringent.
Typical range: $50,000 to $250,000 (for a Tier 2 offering, which is more common for larger deals).

S-1 Legal and Accounting Fees:

The legal and accounting fees for an S-1 IPO are significantly higher because of the more intensive SEC review process, greater disclosure requirements, and the need to meet the listing standards of a national exchange (e.g., NYSE, NASDAQ).
Typical range: $500,000 to $2 million (or more), depending on the complexity of the offering and the size of the company.
Comparison: Legal and accounting fees are significantly higher for an S-1 IPO, largely due to the additional regulatory requirements, extensive due diligence, and ongoing compliance obligations post-offering.

3. Underwriting Fees

Reg A Underwriting Fees:

In a Reg A offering, underwriting fees generally range from 5% to 7% of the total amount raised, though this can vary based on the type of offering and the underwriters’ relationship with the company.

Example: For a $75 million offering, underwriting fees could range from $3.75 million to $5.25 million.
S-1 Underwriting Fees (IPO):

Underwriting fees for an S-1 IPO tend to be higher than those for a Reg A offering. They typically range from 6% to 7%, but the size and complexity of the deal could push these fees higher.

Example: For a $75 million offering, underwriting fees could range from $4.5 million to $5.25 million.

Comparison: Underwriting fees are generally similar between Reg A and S-1, but for larger IPOs, underwriting fees could be slightly higher due to the greater number of institutional investors and a more complex underwriting process.

4. Marketing and Investor Relations Costs

Reg A Marketing Costs:

Reg A offerings often require significant marketing efforts, particularly if the company is using an online platform. Marketing costs typically range from $100,000 to $500,000 depending on the scale of the offering and the target investor base.

Reg A offerings can be marketed to both accredited and non-accredited investors, meaning a more extensive retail investor outreach may be necessary.

S-1 Marketing Costs (IPO):

IPO marketing costs can be significantly higher due to roadshows, institutional investor targeting, and broader media outreach. Marketing costs for an IPO can range from $500,000 to several million dollars.

Unlike Reg A, IPO marketing is targeted primarily at institutional investors, and the company typically needs to travel internationally to promote the offering.

Comparison: Marketing costs for an S-1 IPO tend to be much higher, especially due to the extensive roadshow and media campaign required to target institutional investors.

5. Ongoing Compliance and Reporting Costs

Reg A Ongoing Costs:

Tier 1: Less expensive compliance, as the company only needs to file with state securities regulators in addition to the SEC.

Tier 2: Requires more extensive ongoing reporting, including semi-annual and annual reports, as well as compliance with ongoing SEC regulations. These costs are typically lower than the ongoing costs for a public company with an S-1.

Typical range: $50,000 to $200,000 per year.

S-1 Ongoing Costs (IPO):

After an S-1 IPO, the company must comply with Sarbanes-Oxley Act requirements and file periodic reports (e.g., 10-Q, 10-K, 8-K), as well as proxy statements, and other disclosures required by the SEC. Additionally, there are the costs of being listed on a stock exchange.

Typical range: $500,000 to $2 million per year or more, depending on the size and complexity of the company.

Comparison: Ongoing compliance costs are significantly higher for a public company after an S-1 IPO, especially considering the more rigorous reporting requirements and additional governance requirements (e.g., Sarbanes-Oxley).

6. Total Cost of Capital

Reg A Total Costs:

Total cost of capital for a Reg A offering typically ranges from 7% to 15% of the total funds raised, depending on the size of the offering, the complexity of the business, and the professional fees involved.

S-1 (IPO) Total Costs:

The total cost of capital for an IPO can be much higher, typically ranging from 10% to 20% of the total offering amount. This includes underwriting fees, legal and accounting fees, marketing costs, and other expenses.

Comparison: Reg A offerings are generally less expensive than an S-1 IPO, particularly in terms of legal, accounting, and compliance costs.

7. Key Differences Beyond Costs

Investor Base: Reg A allows for both accredited and non-accredited investors, meaning a broader retail investor base can participate, while an IPO typically focuses on institutional investors and accredited individuals.

Regulatory Requirements: IPOs involve more detailed SEC scrutiny and extensive due diligence, which increases the complexity and cost of the process.

Time to Market: Reg A offerings can often be completed more quickly (e.g., 3 to 6 months) compared to an IPO, which may take 6 months to over a year due to regulatory review, roadshows, and other steps.

Liquidity: An IPO provides liquidity by listing on a major exchange like the NYSE or NASDAQ, while Reg A can result in a listing on smaller exchanges or over-the-counter (OTC) markets, which may have less liquidity.

Conclusion

Reg A is more cost-effective than an S-1 IPO and is often used by companies looking for a faster, lower-cost alternative to going public, especially if they don't need to raise large sums of capital or are targeting a retail investor base.

S-1 IPOs are better suited for larger companies with significant capital needs, as they provide access to institutional investors and listing on major exchanges, but they come with a significantly higher cost and more regulatory scrutiny.

Under Regulation Crowdfunding, the Securities and Exchange Commission (SEC) has established specific criteria that a self-regulatory organization (SRO) must meet to oversee funding portals. These criteria ensure that the SRO can effectively regulate the activities of funding portals to protect investors and maintain market integrity. The key criteria include:

1. Registration with the SEC: An SRO must be registered with the SEC. This ensures that the SRO is recognized by the SEC and subject to its oversight.

2. Rulemaking Authority: The SRO must have the authority to create and enforce rules governing the conduct of funding portals. These rules should be designed to:
   - Prevent fraudulent and manipulative acts and practices.
   - Promote just and equitable principles of trade.
   - Protect investors and the public interest.
   - Facilitate capital formation.

3. Compliance and Enforcement: The SRO must have the capacity to enforce compliance with its rules. This includes having procedures for monitoring the activities of funding portals, conducting investigations, and taking disciplinary actions when necessary.

4. Governance and Independence: The SRO must have a governance structure that ensures its independence from the funding portals it regulates. This includes having a board of directors or a similar governing body with a significant representation of non-industry members.

5. Transparency: The SRO must operate in a transparent manner. This includes making its rules, disciplinary actions, and other regulatory information publicly available.

6. Resources: The SRO must have adequate resources, including financial, technological, and human resources, to carry out its regulatory responsibilities effectively.

7. Conflict of Interest Policies: The SRO must have policies and procedures in place to manage conflicts of interest. This includes ensuring that the regulatory activities are not influenced by the business interests of the funding portals.

8. Record-Keeping: The SRO must maintain comprehensive records of its regulatory activities, including rulemaking, enforcement actions, and communications with funding portals and the SEC.

These criteria are designed to ensure that the SRO can provide effective oversight and maintain the integrity of the crowdfunding market, thereby protecting investors and facilitating capital formation through crowdfunding platforms.

You bring up an important point about terminology in the crowdfunding industry. The term "equity crowdfunding" can indeed be misleading if it implies that all offerings provide equity stakes, when in fact, many do not. The Crowdfunding Professional Association's recommendation to use "regulated investment crowdfunding" is a more accurate and inclusive term.

Here’s an expanded discussion on this topic:

Equity Crowdfunding vs. Regulated Investment Crowdfunding

Equity Crowdfunding
- Traditional Definition: In its original sense, equity crowdfunding refers to a method of raising capital where investors receive shares or equity in the company in exchange for their investment.
- Misleading Aspects: The term can be misleading because not all investment crowdfunding campaigns offer equity. Some might offer other types of securities, such as debt instruments, revenue shares, or convertible notes.

Regulated Investment Crowdfunding
- Broader Definition: This term encompasses all types of crowdfunding that involve regulated securities offerings, not just equity.
- Types of Securities: This can include equity, debt, revenue shares, and other forms of investment contracts.
- Regulatory Frameworks: These offerings are typically conducted under specific regulatory frameworks, such as Regulation Crowdfunding (Reg CF), Regulation A+, and Regulation D in the United States, which provide different levels of oversight and investor protection.

Benefits of Using "Regulated Investment Crowdfunding"

1. Clarity and Accuracy:
   - The term "regulated investment crowdfunding" accurately reflects the range of financial instruments available and the regulatory environment governing these offerings.
   - It helps avoid confusion for investors who might otherwise expect equity stakes in all crowdfunding opportunities.

2. Investor Education and Protection:
   - Using precise terminology is crucial for investor education. It ensures that potential investors understand the nature of the securities being offered and the associated risks and returns.
   - It underscores the fact that these offerings are subject to regulatory scrutiny.

3. Inclusiveness:
   - The broader term encompasses a wider array of investment opportunities, making it more inclusive of different types of fundraising campaigns.
   - It reflects the diversity in the crowdfunding space, acknowledging that companies might choose different financial instruments based on their specific needs and strategies.

Examples of Regulated Investment Crowdfunding

1. Regulation Crowdfunding (Reg CF):
   - Purpose: Allows smaller companies to raise up to $5 million per year from a large number of investors through an online platform.
   - Securities Offered: Can include equity, debt, and other types of securities.

2. Regulation A+:
   - Purpose: Enables companies to raise up to $75 million per year from the public with fewer disclosure requirements than a full public offering.
   - Securities Offered: Primarily equity, but can also include debt and other securities.

3. Regulation D (Rule 506(c)):
   - Purpose: Allows companies to raise an unlimited amount of money from accredited investors with general solicitation and advertising.
   - Securities Offered: Can include equity, debt, and other types of investment contracts.

Conclusion

The shift from using "equity crowdfunding" to "regulated investment crowdfunding" is a positive development that enhances clarity, accuracy, and inclusiveness in the crowdfunding industry. This terminology better reflects the variety of financial instruments available to investors and underscores the regulatory framework that governs these offerings. By adopting this term, industry stakeholders can help ensure that investors have a clear understanding of what they are investing in, ultimately fostering a more transparent and trustworthy investment environment.

Yes, both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) play roles in regulating investment crowdfunding. 

The SEC oversees securities markets in the United States, ensuring that investors are protected, markets are fair, orderly, and efficient, and capital formation is facilitated. The SEC has established regulations for crowdfunding, which are designed to help smaller companies raise money while still providing protections for investors. These rules are part of Regulation Crowdfunding (Reg CF), which allows companies to offer and sell securities through crowdfunding.

FINRA, on the other hand, is a non-governmental organization that acts as a self-regulatory organization (SRO) for brokerage firms and exchange markets. FINRA is authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly. Within the context of crowdfunding, FINRA is responsible for regulating crowdfunding portals, which are online platforms that facilitate the offering and selling of securities through crowdfunding. Crowdfunding portals must register with the SEC and become a member of FINRA to operate legally.

Both organizations ensure that platforms adhere to the regulations set forth to protect investors and maintain the integrity of the securities market. This includes rules about who can invest, how much they can invest, and how companies can raise funds through crowdfunding.

Private equity (PE) investors play a crucial role in the financial landscape, providing capital, expertise, and strategic support to companies across various stages of growth. However, their involvement is not without challenges and criticisms. Here are some of the problems associated with private equity investors:

1. High Leverage
- Debt Load: PE firms often use significant amounts of debt to finance their acquisitions, known as leveraged buyouts (LBOs). This can place a substantial financial burden on the company, increasing its risk of default or bankruptcy if it cannot service the debt.
- Financial Stress: The need to meet debt obligations can force companies to focus on short-term financial performance at the expense of long-term strategic investments, potentially stifling innovation and growth.

2. Short-term Focus
- Exit Strategy: PE firms typically have a relatively short investment horizon (5-10 years) as they seek to exit their investments through a sale or IPO for a return. This can lead them to prioritize short-term gains over the long-term health and sustainability of the business.
- Cost Cutting: To boost short-term profitability, PE investors may implement aggressive cost-cutting measures, including layoffs, which can impact employee morale, company culture, and the quality of products or services.

3. Loss of Control
- Management Changes: PE firms often seek significant control over the companies in which they invest, which can lead to changes in management and strategic direction. While sometimes beneficial, these changes can also disrupt the company's operations and alienate existing leadership and staff.
- Strategic Shifts: The strategic priorities of the PE firm may not always align with the long-term vision of the company's founders or existing management, leading to conflicts and tension.

4. Operational Disruption
- Restructuring: The operational changes and restructuring efforts initiated by PE investors to improve efficiency and profitability can disrupt ongoing operations and may not always lead to positive outcomes.
- **Innovation and Growth:** The focus on cost-cutting and debt repayment can limit the company's ability to invest in innovation and growth opportunities, potentially leaving it at a competitive disadvantage.

5. Transparency and Accountability
- Private Operations: Given the private nature of PE transactions, there is often less transparency compared to public companies, which can lead to concerns about accountability, especially in terms of social and environmental impact.
- Regulatory Scrutiny: PE firms and their investment practices have come under increased scrutiny and criticism for their impact on employees, communities, and the economy, leading to calls for more stringent regulation and oversight.

6. Market Impact
- Consolidation: PE-led mergers and acquisitions can lead to industry consolidation, potentially reducing competition and innovation in certain sectors.
- Economic Impact: There are concerns about the broader economic impact of PE investments, particularly regarding job losses, wealth concentration, and the stability of financial markets.

While PE investors can provide valuable resources and expertise to help companies grow and succeed, it's important for companies considering PE investment to carefully weigh these potential challenges and ensure alignment of goals and values.

Regulation D (Reg D) crowdfunding refers to a specific exemption under the U.S. Securities and Exchange Commission (SEC) regulations that allows companies to raise capital through the sale of securities without having to register those securities with the SEC. The regulation is part of the broader set of rules governing private placements.

Regulation D provides three different rules (Rule 501, Rule 502, and Rule 503) that companies can use to conduct private placements, and one of these rules, Rule 506, is commonly associated with crowdfunding activities. Rule 506 has two variations: Rule 506(b) and Rule 506(c).

1. Rule 506(b): This is the traditional form of private placement under Regulation D. It allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors (typically high-net-worth individuals and institutions) and up to 35 non-accredited investors who meet certain sophistication requirements. The company, however, cannot engage in general solicitation or advertising to attract investors.

2. Rule 506(c): This variation allows companies to engage in general solicitation and advertising to attract investors, but all investors must be accredited, meaning they meet specific income or net worth criteria. This rule provides greater flexibility in marketing and reaching potential investors.

It's important to note that crowdfunding under Regulation D is distinct from crowdfunding under Regulation Crowdfunding (Reg CF), which is a separate SEC regulation that allows companies to raise smaller amounts of capital from a larger number of both accredited and non-accredited investors through registered crowdfunding platforms.

In summary, Reg D crowdfunding allows companies to raise capital through the sale of securities without a full SEC registration process, primarily targeting accredited investors. The specific rules and requirements depend on whether the company chooses Rule 506(b) or Rule 506(c).

"Testing the waters" (TTW) in crowdfunding refers to the practice of gauging interest and collecting potential commitments from potential backers BEFORE officially launching a crowdfunding campaign. This pre-launch phase allows creators to assess the viability of their project and gather insights into how well it might be received by the crowdfunding community.

Creators often create a preliminary campaign page or use a specialized "pre-launch" page on a crowdfunding platform to showcase their project idea, outline key details, and, in some cases, offer early incentives or exclusive rewards for those who express interest or make a commitment to back the project once it officially launches.

During this testing the waters phase, creators can collect email addresses or other contact information from interested individuals. This information can be used to build a mailing list and keep potential backers informed about the project's progress, updates, and the official launch date.

Testing the waters serves several purposes:

1. Assessing Interest: Creators can gauge whether there is sufficient interest in their project before investing time and resources into a full-fledged crowdfunding campaign.

2. Building a Community: Gathering a list of interested individuals allows creators to build a community around their project, which can be beneficial when the campaign officially launches.

3. Feedback and Refinement: Creators can receive feedback on their project idea and make necessary adjustments based on the responses they receive during the testing phase.

It's important to note that while testing the waters can be a valuable strategy, creators should be transparent about their intentions and clearly communicate that the project is in the pre-launch phase. Additionally, not all crowdfunding platforms have specific features for testing the waters, so creators may need to use alternative methods to gauge interest, such as social media or a dedicated website.