The Legal Regulation of U.S. Crowdfunding: An Organically Evolving Patchwork

The legal regulation of crowdfunding in the United States is neither well calibrated nor holistic. With the exception of specific securities regulation legislation, the regulation of crowdfunding under U.S. law exists as an extension of principles of pre-existing regulation to a specific new and continually changing Internet-based financing space. As a result, while some common consumer protection objectives can be identified, the legal regulatory approach to crowdfunding did not develop through deliberate, rational choice based on coherent public policy objectives. Instead, it arose and evolved by necessity in response to the spontaneous and natural origination and development of crowdfunding as a socioeconomic phenomenon. As a general matter, U.S. law regulates crowdfunding based on the deemed nature of the financial interest of the funder. Some funders expect nothing back in return for their contribution to a crowdfunding campaign; others expect a good, service, or possible financial return. Each of these funding interests is governed by distinct rules operating, most prominently, to protect the funder from certain elements of risk. Regulation of these various types of offering also may have the objective of fostering or encouraging that particular type of financial instrument or method of financing. Accordingly, it is important to identify various types of crowdfunding in the United States based on the nature of the applicable funding interest and the various manners in which crowdfunding is engaged to best understand how crowdfunding is regulated under U.S. law. This report, written in anticipation of the The XXth International Congress of the International Academy of Comparative Law (to be held in 2018 in Fukuoka, Japan), begins by identifying and defining types of crowdfunding that engage U.S. legal regulation. It continues by briefly describing the legal regulation applicable to each type. This represents the bulk of the report. Finally, before concluding, the report highlights a few additional legal regulatory risks and considerations in U.S. crowdfunding.