ONLY REGISTERED BROKER-DEALERS OR REGISTERED INTERMEDIARIES CAN BE FUNDING PORTALS
Only registered broker-dealers or registered intermediaries can sponsor a crowdfunding portal. Registered broker-dealers are permitted to do several things which registered intermediaries cannot, namely, offer investment advice, and solicit purchases, sales or offers of any of the securities offered, compensate employees, agents or other persons for such solicitation based on the sale of securities, or hold, manage, possess, or otherwise handle investor funds or securities.
Although a registered intermediary is restricted from many activities permitted to a broker-dealer, it still has significant responsibilities. The registered intermediary has to implement written compliance policies, just like a broker-dealer. It also must comply with privacy rules applicable to broker-dealers, and properly maintain books and records. The registered intermediary is also subject to inspections by the SEC and FINRA.
Both broker-dealers and registered intermediaries have other significant responsibilities. Not only are they required to make available the offering documents prepared by the companies offering securities, they are required to provide educational materials regarding crowdfunding, verify that the issuer complies with the requirements for crowdfunding, ensure that the offering documents are available publicly for at least 21 days before any sales, provide disclosures to investors about the intermediary’s compensation, ensure that the investor complies with the investment limitations, verify that none of the control persons of the company have proscribed negative antecedents, and provide a neutral discussion board for each company selling its securities.
The SEC has, therefore, play significant burdens and responsibilities upon a funding platform.