That Didn’t Take Long: Crowdfunders Charged with Fraud

Bay State Charges Two Firms with Fraudulent Security Sales 

Investment News, the daily online publication of the financial advisory industry, reports that Massachusetts took aim Thursday at two players in the small but potentially vast arena of crowdfunding, which lets small private companies sell equity directly to investors:

Crowdfunding was enshrined earlier this year in the Jumpstart Our Business Startups Act. A crowdfunding equity raise can have an unlimited number of investors but is limited to $1 million.  State securities regulators such as Mr. Galvin were against the measure and petitioned Congress not to sign off on the legislation. They believe that the law was essentially opening a door for those with a history of defrauding investors.

“I support rules that allow early-stage companies to raise capital more easily,” Mr. Galvin said in a statement. “But I would urge the Securities and Exchange Commission to adopt meaningful and effective ‘bad actor’ rules that will disqualify securities law violators, brokers with revoked licenses and other fraud operators from using these exemptions from the securities registration requirements.”

Meanwhile, the North American Securities Administrators Association said on Wednesday that it had found an explosion in the use of “crowdfunding” online.An analysis of Internet domain names by state and Canadian securities regulators found nearly 8,800 domains with ‘crowdfunding’ in their name as of Nov. 30, up from fewer than 900 at the beginning of the year,” NASAA said in a statement. “Of these websites, about 2,000 contained content, more than 3,700 had no content and more than 3,000 appeared to be ‘parked’ and serving as placeholders to reserve a domain name for later use or sale. Of the domains with ‘crowdfunding’ in their name, about 6,800 have appeared since April 2012, when the JOBS Act was signed into law.”

read the whole piece by Bruce Kelly here. 

Crowdfunding Sort of Works Like This

 

see also:
“How Crowdfunded Hardware Makers Hit It Big In 2012”
Venture Capital Roundup—Wall Street Journal — 12/6/2012

“Shaking Up Crowdfunding”
Fast Company — 5/14/2012

“Comparison of Crowdfunding Websites”
Inc. — November, 2011