Most people are familiar with crowdfunding sites such as Kickstarter and GoFundMe—sites that allow users to part with their money in exchange for products or donate their capital to organizations they believe in. However, these sites have one trait in common: they do not offer contributors equity or a promise for future profits. For a long time, selling equity meant complying with the costly requirements of federal securities laws, which was cost-prohibitive for many small businesses; it was illegal for businesses to offer equity over a site in the way businesses on Kickstarter offered products. The Jumpstart Our Business Startups (JOBS) Act changed that. Small businesses, initially precluded from raising capital through the promise of equity, could do so now. However, the passage of the JOBS Act came with a number of requirements for businesses trying to sell equity via crowdfunding. In particular, these businesses could not offer their equity through just any Internet site. They had to do so through a registered intermediary—a gatekeeper to the equity crowdfunding scene. These intermediaries came in two types: broker-dealers (a familiar party in securities law) and a new statutorily created entity called a “funding portal.” Funding portals have many requirements imposed on them, but unlike broker-dealers, they are not required to be licensed to act as an intermediary.

The absence of a licensing requirement for funding portals is problematic. The first litigated case involving a funding portal, Department of Enforcement v. DreamFunded Marketplace, LLC, presented that the lack of a licensing requirement threatens the twin purposes of the JOBS Act: capital formation and investor protection.