Intermediaries, as set out in the Act, will be required to obtain background and history checks on officers, directors and certain affiliates of the issuer. Our concern is that these provisions do not constitute an undue burden across the marketplace. If background checks are set in parallel with the size of the offering, this would give a scaling feature that might be necessary to keep smaller offerings feasible. And smaller offerings are expected to be, overall, a significant part of the crowdfunding landscape. A 20% shareholder in one issue shouldn’t automatically be required to meet the same level of background checks as one in a much smaller offering.
We would also like to see a safe harbor provision that limits liability for intermediaries who perform to regulated standards. These standards would be the least burdensome with automated checks, such as credit and criminal history using existing technology solutions.
The balance to be struck is between a high level of fraud detection and investor protection, coupled with the lowest overhead, especially for smaller dollar amount fundraising. The parallel with broker-dealers is not a strong one. Funding portals should have a lower standard to meet because they have a role limited by statute. The goal is to find a commercially realistic solution and a safe harbor checklist that all portals can adopt.