posted Nov 8, 2013, 10:15 AM by Unknown user
updated Nov 8, 2013, 10:16 AM
Crowdfunding will either democratize venture capital or become one of the largest boiler room schemes in history.
Either way, it will be legal soon and thousands of companies have already staked their claim on the Internet.
Can Crowdfunding Create Jobs and Will The Government Help?First caution: The Securities and Exchange Commission hasn’t finalized rules on the section of the JOBS Acts that allows small companies to raise money directly from investors with reduced regulations. Actually, it’s not known yet what those regulations will be. But that hasn’t stopped myriad of operators from putting out their cyber-shingles.
The North American Securities Administrators Association, a group of securities regulators, is keeping a close eye on the crowdfunding scene. Here’s what they’re seeing:
“Investors soon can expect to be inundated with crowdfunding pitches, legitimate or otherwise,” said Heath Abshure, NASAA President and Arkansas Securities Commissioner. An analysis of Internet domain names by state and Canadian securities regulators found nearly 8,800 domains with “crowdfunding” in their name as of November 30, 2012, up from less than 900 at the beginning of the year. 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.
“Many of these sites appear to have been formed by large credible organizations while others appear to be created by individuals that may be operating out of their basements,” said Robert Moilanen, Minnesota Securities Director and chair of the North American Securities Administrators Association’s Internet Fraud Investigations Project Group. “The pure volume suggests that the wave is about to overtake the dam.”
State watchdogs have been preparing for the onslaught of crowdfunding sites since the JOBS Act was signed by President Obama earlier this year.
The SEC was scheduled to issue rules on protecting investors within the next few months, although it’s not known how the departure of SEC ChairmanMary Schapiro will impact — and perhaps slow — that process.
Here’s an FAQ the SEC has on crowdfunding.
This is an early SEC ruling on crowdfunding rules.
In the interim, keep your powder dry on crowdfunding. It’s not legit yet and remains to be seen if there will be meaningful investor protection safeguards.