The Corporate Law Group

Unintended Damage From Securities Laws

unintended damages from securities law picWhile the SEC fiddles with an attempted regulatory regime in response to the Crowdfunding mandate delivered by the Congress Critters 100 years ago, and individual States rush to fill the breach with their own in-state-only crowdfunding schemes, people are harmed. As usual, this unintended harm is ignored by almost everyone (other than possibly the people who should have been able to avoid the harm). What form does this harm take? Freezing average people out of great investments. A recent example is Oculus Rift. 9,522 people pledged almost $2.5 million in August, 2012 in response to a $250,000 Kickstarter campaign, but Oculus was sold to Facebook for $2 billion before the virtual reality headset was completed. The Kickstarter backers got a T-Shirt and Oculus founder Palmer Luckey got half a billion dollars. Why couldn’t they share in this tremendous upside? After all, they found it first. Before them, the early users of eBay were promised eBay stock for using the service but founder Pierre Omidyar had to renege on that promise because his lawyers rightly scared him that the project constituted an illegal public offering. Early eBay users built eBay just as the Oculus’ Kickstarter backers built Oculus. But the government must protect us from ourselves so non-wealthy folks are kept so. Why is it not OK for an enthusiast to put $500 in a startup? That is the question. Well, they might lose it, like in an expensive dinner or escalating taxes. Sure, most start-ups fail, but tell the potential angel that much and they probably know everything they need to know. Why not let everyone hunt for eBay and Oculus? Your nanny-State says, “No.”