Research On Legal Problems Of Equity Crowdfunding

By referring to the legal systems of the JOBS Act and the Final Rule of Crowdfunding of America,this dissertation analyzes the structure and function of crowdfunding rules from the perspectives of retail crowdfunding and accredited crowdfunding respectively,probes into the roots of the differences between them by comprehensive and normative analytic methods and summarizes the deviation of researches and supervisory regulations for equity crowdfunding.In the end,this dissertation,based on the status quo of market and legislative needs,puts forward the countermeasures and reform programs from the current dichotomy to the trichotomy of retail crowdfunding,retail crowdfunding of O2O(Online to Offline)type and accredited crowdfunding.Apart from the introduction and conclusion,this dissertation is divided into five chapters:The first chapter introduces the basic principles of equity crowdfunding.It firstly analyzes the concept,classification and basic principles of crowdfunding.Equity crowdfunding derived from crowdsourcing and incentive crowdfunding and develops with the distinctive nature of issuance of securities as the subject of funding is equity.Secondly,this paper explores the legislative foundation and necessity of equity crowdfunding in the “Internet+” era.The development of Internet technology has posed a challenge to the traditional financial monopoly and the dual demands from smallbusiness financing and the investment of the middle class have catalyzed the the new financing mode of equity crowdfunding.In response to the “Savage Growth” of Chinese Internet financial market,the regulatory policy explicitly positions equity crowdsourcing as a new board market to reach the objective of inclusive finance.The second chapter presents the dichotomy mode of retail crowdfunding and accredited crowdfunding.This chapter starts with the analysis of the dichotomy mode of the retail crowdfunding(included in the third chapter of JOBS Act)and the accredited crowdfunding(included in the second chapter of JOBS Act)and such classification method is officially accepted by Chinese regulatory policy and it is the logic basis for the subsequent argumentation.Secondly,the two modes have the same inherent logic in dealing with information asymmetry and agency cost.Confined by their respective core predicaments,they spin off two similar rule systems yet with their own differences.The core predicament of retail crowdfunding lies in handling the behavior of irrational decision making by investors.Investors in the market are inexperienced,leading to the scenario where the traditional disclosure system fails to bring out its original value.Hence,the theoretical thinking of crowd wisdom builds on the system design.The limitation of individual cognition is balanced by the diversified composition of investors,which then achieves more objective and true assessment results for the issuers and hereby manage information asymmetry.The nature of accredited crowdfunding lies in that it reaches beyond the geographic limitations and along with cost reduction,it is able to access more potential investors through Internet.Thus it can be seen that accredited crowdfunding basically observes the issuance system of traditional retail crowdfunding,which has been partially amended to adapt to the Internet environment.This chapter attempts to clarify this point: the systems where the two categories of crowdfunding are separately applied are the externalization of the necessity of their inherent logic demands with their own specific characteristics,which shall not be deemed as the universal system for equity crowdfunding without distinction.The third chapter is on the analysis and functional explanation of the rules for retail crowdfunding.In China,retail crowdfunding is still in the stage of theoretical research without legislation for reference.Therefore,this chapter firstly combs through the third chapter of the JOBS Act and the content of Crowdfunding Exemption,Issuer Requirements,Intermediary Requirements,Additional Funding Portal Requirements,and Miscellaneous Provisions included in the Final Rule of Crowdfunding and illustrates the reasons why the U.S.Securities and Exchange Commission adjusted some rules included.Secondly,this chapter further studies the mandatory disclosure and the wisdom of crowd,which are the two most controversial issues in the academia.On mandatory disclosure,subject to the specialty of the market for retail crowdfunding,the mandatory disclosure system falls into a knotty logical paradox,which consequently not only increases the issuance cost,but also fails to avoid turning into the lemon market.Therefore,the cost of information disclosure should be properly controlled so that it can fulfill its due value in countering frauds and draw on the wisdom of crowd to support the mandatory disclosure system and jointly tackle information asymmetry.Nevertheless,the wisdom of crowd may turn into Herding Effects or Information Cascades,which is to the contrary of itself.In this regard,communication channels should be supplemented to legislation in order to supervise the information in communication in a unified manner and keep malicious frauds during issuance in check.The fourth chapter is on the analysis and functional explanation of the rules for accredited crowdfunding.The Financing Regulation of Accredited Crowdfunding(trial implementation)(Proposed Rule)published by SEC aims to regulate the development of accredited crowdfunding in China.However,this Regulation does not capture the purport of the amendment of American accredited crowdfunding system provided by the JOBS Act,neither from the perspective of the logical system nor from the angle of the detailed rules.This chapter covers the regulations and principles of securities private placements in America and based on the regulation comparison between the old and the new,it further expounds the purpose of institutional adjustment of the general advertising and accredited investors.Relieving the restrictions on general advertising extends the traditional private placement to the Internet,which concurrently leads to the change of the scope of accredited investors of natural persons.When the standard of existing assets is observed in determining accredited investors,proper adjustments needs to be made in terms of asset certification and method of inspection.Meanwhile,such variation highlights the drawbacks of the current system of accredited investors.Compared with revising the criterion for determining accredited investors,it seems that making use of big data to free from the paradox of reputational capital of credit intermediaries is a more effective countermeasure.The fifth chapter is on the legislative framework and regulation establishment for the equity crowdfunding in China.First and foremost,on the basis of the aforementioned arguments,this chapter puts forward the trichotomy method for the legislative framework in China: retail crowdfunding,retail crowdfunding of O2O(Online to Offline)type and accredited crowdfunding,among which retail crowdfunding and accredited crowdfunding can be regulated pursuant to the logic of the JOBS Act and some rules are subject to localization and the retail crowdfunding of O2O(Online to Offline)type draws on the experience of AIM of U.K.in response to the policy requirements of innovative integration from online to offline transactions.In the second place,based on the successful trial experience of the prosecution of Beijing Fit Network Technology Co.,LTD against Beijing Nuomiduo Catering Management Co.,LTD,this chapter further explores the variation of the application of law and the logic of judgment which may appear after the revision of the Securities Law(which may be amended in the near future)and the solution to the deficiency of litigation system for securities groups.In the end,it is proposed in this chapter that the whistleblower incentive mechanism should be revised in response to the specific regulatory requirements of the capital market in the Internet era.