SEC Social Media Guidelines for Crowdfunding

SEC social media guidelines will have a substantial impact on how Michigan crowdfunding ventures advertise their offerings. Before reviewing the details of the new rules, let’s take a look at Michigan’s crowdfunding law.

A Little History & the Dawn of Crowdfunding

Traditionally, a small business owner seeking investments went to friends and neighbors pitching an idea until somebody mentioned their kooky uncle just fell into some money and was looking for a place to invest it. But this was hardly a fool-proof plan.

Luckily, for today’s cash-poor entrepreneurs, the hyper-communication tools available via social media makes small business owners capable of reaching everybody’s kooky uncles – and all at once!

Since crowdfunding, however, is muddled with risks from bad actors, regulators have imposed new requirements upon those seeking to enroll the help of the crowd when launching a new business.

The Michigan Invests Locally Exemption

The Michigan Invests Locally Exemption law (MILE) is the state’s attempt at regulating the organic and innovative method of fund-raising we know as crowdfunding.

We have written repeatedly on MILE, cautiously praising it as a tremendous tool for start-ups looking to leverage the power of the crowd. Though the prospect of “selling” a promising business to the online market may seem ideal, business owners must be careful not to overlook the many legal and practical missteps that may befall an overeager equity-issuer.

The SEC’s New Interpretations and What They Mean for MILE

The reality is that the fate of MILE rests firmly in the hands of the federal Securities and Exchange Commission which regulates interstate markets. Though the SEC is not authorized to regulate strictly intrastate economic activities, it has apparently taken notice of Michigan’s MILE and similar state laws popping up across the nation.

Recent SEC scrutiny has taken the form of Compliance and Disclosure Interpretations which take issue at how businesses advertise their stock offerings. So long as Michigan businesses, for instance, take “adequate measures” to keep their advertised equity-offerings within Michigan, the SEC will leave them alone.

But practically speaking, these Interpretations prevent small businesses from marketing their equity-sales using the cheap and very interstate advertising methods available to them on the most popular social media services (e.g. Facebook, Twitter, etc.). This limitation is troubling for small businesses, and those who run afoul of the new SEC Interpretations run the risk of having to return any investments with interest.

The Need for an Internet Lawyer

As always, it is better to do a job right the first time. At Revision Legal, our attorneys know how to navigate the tumultuous legal terrain being laid by legislators and agencies at the state and federal levels. Before your risk jeopardizing your promising business, consider contacting our firm and inquiring about how we can help take your business to the next level of success.