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Influential Panel to Weigh Tighter Crowdfunding Limits

NEW YORK (The Deal) -- The Securities and Exchange Commission is considering a controversial measure that would allow for the first time smaller investors to make private capital allocations through "crowdfunding" portals - a key provision in the JOBS Act that seeks to ease restrictions on entrepreneurs so they can raise capital cheaply.

Before the SEC adopts its rule on the subject, the agency must first consider a series of investor protection recommendations expected to be voted on at an April 10 meeting of its influential investor advisory committee. The panel is a key advocacy group that meets regularly at the SEC in sessions attended by top agency officials, including commission Chairwoman Mary Jo White.

The SEC proposal, which posed 295 questions and is hundreds of pages long, provides exemptions from SEC registration and disclosure rules to allow small businesses to raise up to $1 million annually from smaller investors.

The advisory committee is set to make its mark on a controversial provision in the proposal that allows investors to contribute up to 10% of their yearly income or assets to these startup companies if they have a net worth of $100,000 or they earn $100,000 annually. Individuals who earn less than $100,000 a year or have less than $100,000 in net worth will be able to invest up to $5,000 per company annually.

According to people familiar with the situation, the panel is expected to vote on a recommendation that would allow investors to allocate 10% of their yearly income or assets only if they have both an annual income of $100,000 and a net worth of the same amount.

Academics and investor protection advocates said they worry the most about individual investors who have no annual income but could be permitted, based on the SEC's current proposal, to invest 10% of their net worth.

"A person who has no income but has a $100,000 net worth could be a retired person living on social security," said Mercer Bullard, an associate professor at the University of Mississippi School of Law. "An SEC that believes that kind of person should be permitted to invest in the higher limit is not an investor-protection agency."

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