In the SEC’s JOBS Act Lawsuit, a Message to Critics

SECThe SEC announced a lawsuit on Thursday against a business in Spokane Valley, Wash., accused of defrauding 21 investors of about $400,000. The agency’s news release leads with charges that the company fooled investors “with claims to raise billions of investment capital under the Jumpstart Our Business Startups (JOBS) Act.”

The SEC has been criticized for not finalizing the overdue JOBS Act rules that would make it easier for small businesses to raise capital. The agency, which opposed the law before it passed last year, warned that it could open the doors to fraud. Reading between the lines, the lawsuit is an implicit reminder to the frothy crowdfunding industry awaiting the SEC’s rules that concerns about fraud are real. (The SEC declined to comment.)

It’s also a message to would-be scammers that the agency is policing people who intend to raise money under the JOBS Act provisions.”I think we’re going to see a number of litigation initiatives like that, just to remind people,” says Sara Hanks, a former SEC attorney and chief executive of CrowdCheck, which plans to vet companies seeking crowdfunding investments. “It’s definitely in their interest to make some publicity now before it gets out of hand.”

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