Federal / State Crowdfunding Coordination

When testifying before the Senate Banking Committee early last month, NASAA (North American Securities Administrators Association) President Jack Herstein asserted that states, not the federal government, should be in charge of crowdfunded securities offerings.

"Congress should allow the states to take a leading role," Herstein said. "The states should be the primary regulator . . . of a crowfunding offering."

What's more, Herstein anticipated the objection that it would take too long for 50 states to put a crowdfunding proposal forward. "The states are working on it, and the states can do it," he testified then.

Clearly he meant that. Last week, Jim Hamilton's blog broke the news that a NASAA committee has submitted a draft to member regulators for comment. And as further discussed on this blog yesterday, the NASAA crowdfunding proposal takes us into details the the federal legislative proposals, so far, have not.

Now, NASAA appears to have thought better of putting its draft crowdfunding rule on the open web (the pdf was taken down from the NASAA site by the time I hit "publish" on yesterday's post), but we do know Herstein is following through. The NASAA document requests that member regulators submit responsive comments by February 7, 2012.

Why so fast? In part, the document says, because of "the speed with which Congress may proceed on these issues." Some proponents of a federal crowdfunding exemption worry that momentum may have stalled over the holiday break, but NASAA's sense still seems to be that the train is leaving the station.

But we don't know for sure that the states really will pull together to endorse an effective exemption. The draft proposed rule is cumbersome enough, and reflects a committment to a "theology," as SM Turner put it in the comments yesterday, of old school, blue sky law. Will the regulators' internal review process take the state crowdfunding prototype closer to the McHenry bill, or, as seems more likely, further from it?

As reassuring as Herstein was in his Congressional testimonry last month, the NASAA document reveals that the organization may still be trying to pin down how many states may be on board. One of the questions put out for response:

"If the federal exemption preserves state authority to regulate in this area, is your state unwilling to consider the adoption of a uniform crowdfunding exemption?"