Corporate Finance & Securities

NASAA to Investigate Further into Early Crowdfunding Platforms Jumping the Gun

I read a Wall Street Journal article today about the recent investigation into websites claiming to be crowdfunding platforms. Of the reported 9,000 websites that contain the word “crowdfund” in their website names, the North American Securities Administrators Association (NASAA)—the organization that represents state securities regulators—has investigated roughly 2,000, and plans to give a closer look at 200 of those.

Why the investigation in the first place? Well, many securities regulators are concerned that the “relaxed” rules governing securities offerings for private companies might present an opportunity for fraud. NASAA has decided to look further into these crowdfunding sites in an effort to reduce the likelihood of fraud and crack down on those companies that have jumped the gun on crowdfunding prior to final rules being introduced by the SEC.

The crowdfunding enthusiasts argue that the significant increase in the number of “crowdfunding” websites is a clear indication of the amount of demand for  small business financing through online platforms. The consulting firm, Crowdfund Capital Advisors, estimates the crowdfunding market to be worth $4.6 billion annually by 2018.

Other crowdfunding followers mention a fear that the rules may be overly burdensome and make crowdfunding cost prohibitive for the small businesses that the JOBS Act intended to target.

Regulators, of course, fear that unless the rules are drafted in way to maximize investor protection, then crowdfunding will be an industry of fraud and failed “pie-in-the-sky offers.” This, many regulators believe, will lead to a lack of investor confidence in buying shares through crowdfunding, and eventually a quick end to crowdfunding.

Of course, at this point all we can do is speculate. Until the SEC and FINRA decide to implement final rules for crowdfunding, there’s no way to tell how successful private offerings through crowdfunding will be.

          


Gavin Johnson

Gavin enjoys craft beer and is learning the art of brewing.


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