Education is the Best Weapon Against Crowdfunding’s Posers

Yesterday the Wall Street Journal published an article outlining a ten-fold increase in crowdfunding-related domain names in the past year. The main takeaway was in how many were determined to need further scrutiny…

In a year-end trawl of the Internet, the association of securities regulators found 9,001 website names containing the word “crowdfund,” according to a spokesman. The total is up more than tenfold from a year earlier. Officials have reviewed about 2,000 of those site names, concluding that about 200 need a closer examination or monitoring, the spokesman said.

So 10% of the web sites examined thus far warranted further monitoring or action. One site owner, Stephen Rea, has already received a warning to explicitly “make it clear on the site that he isn’t selling shares.”

A separate website Mr. Rea set up inviting investors to “Send Yo Money!” claimed to be operating “under” the JOBS Act, while his company’s site solicited “crowdfunding” financing.

I don’t think “Send Yo Money” is what regulators or crowdfunding stakeholders want to see on sites claiming to be participating in the industry.

To date, none of the sites in question have been publicly cited for anything fraudulent.

However, the situation highlights another problem altogether: how do crowdfunding stakeholders control the narrative of crowdfunding when individuals like Mr. Rea can have a “crowdfunding web site” online with $15 and an hour of his time?

This is yet another issue of investor education that the industry will have to tackle head-on.

 

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