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Make me a match,
Find me a find,
catch me a catch”
Ever since the SEC issued its compliance and disclosure interpretations (or C&DIs) on conducting intrastate crowdfunding offerings under Rule 147, I just can’t seem to get that song out of my head . . . do you know it? It’s from the Broadway classic, Fiddler on the Roof. Set in the early 1900s in rural Russia, Fiddler tells the story of Tevye (TEV-yah), the father of five daughters, and his struggle to maintain his family and Jewish religious traditions in the face of outside (modern?) influences encroaching upon their lives. (Thanks to the Wiki page for this quick synopsis.) I know the show and the song well. I played Chava (HA-vah), the “book smart” daughter, several years back. (Type-casting, you say???)
You see, Tevye expects his daughters to marry as he and the local matchmaker, Yente (YEN-teh), dictate. This doesn’t sit well with Tevye’s three oldest strong-willed, independent young daughters, Tzeitel, Hodel, and Chava. They think they should be able to find their own husband and marry for love – even if they don’t follow with tradition (gasp!). They don’t need, and certainly don’t want that old busy body, Yente, getting into their business and telling them who and in which order they must marry! And, just think how much money they could save by not having to pay the matchmaker’s fees!
Look through your book,
And make me a perfect match"
Gosh this sounds familiar. It seems the SEC is taking a page from Tevye’s script – insisting that companies use a matchmaker to find investors. Think about it:
- The recent CD&Is on Rule 147 tell us that companies can use third-party internet portals to conduct intrastate crowdfunding offerings, but that it’s going to be really tough for them to “go it alone” and use their own existing internet or social media presence to promote offerings.
- The proposed Securities Act Section 4(a)(6) “crowdfunding” rules under Title III of the JOBS Act require companies to use registered funding portals to conduct offerings.
- Procedures under new Rule 506(c) favor the use of third parties (registered broker-dealers, CPAs, attorneys, etc.) for verification of accredited investor status.
All of these rules and regulations are making it harder for companies to “go it alone” – to find investors without having Yente in the middle (or having to pay Yente for her services). The one bright spot may be moving forward under Regulation A+ under Title IV of the JOBS Act, but if NASAA succeeds with its lawsuit, companies may have several Orwellian “Big Brothers” to deal with as well.
Don’t get me wrong, matchmakers can serve a valuable purpose (in the love world and in the investments world). A good matchmaker lives or dies on her reputation. She learns everything about her clients and takes on the responsibility to make the best possible match for a family like Tevye’s -- or her livelihood suffers. But is that really what is going to happen here? Yes, there will likely be some form of recordkeeping and diligence obligations imposed on crowdfunding intermediaries, but will their services really add value? Or will it be more like eHarmony or Match.com, where they present a list of companies that need capital and not much more, requiring investors to cull out the “cute ones” and take their chances on coffee or a “get to know you” lunch? Only time will tell.
I get the challenge for the SEC. Just like in Fiddler, the SEC is struggling to maintain the long-standing traditions that provide important investor protections in light of the modernizing world. I’m just not sure its position limiting the ability to go it alone under Rule 147 really hits the mark.
Irrespective of how it all plays out, I can’t help but chuckle as I imagine the SEC Commissioners, arms raised, fingers snapping, stomping around in full Tevye-style belting out:
Tra-di-tion . . . .
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