FINRA Action on uFundingportal: Potential for Fraud Found on Crowdfunding Platform

Stop-Fraud-600uFundingPortal (UFP, LLC), disappeared from the ranks of approved Reg CF crowdfunding platforms in early November. Before their removal, a multitude of crowdfunding industry insiders questioned the operation and the investment offers posted on the site. The posted investments lacked transparency while proposing valuations and investor terms that were outlandish at best.

Speaking with Sara Hanks of CrowdCheck in November, Hanks described uFundingportal as having;

“…an almost complete failure to follow disclosure and filing requirements.”

Crowdfund Insider has reviewed a copy of the Acceptance, Waiver and Consent (AWC) filed by FINRA and it describes what their investigation uncovered.

According to FINRA, uFundingPortal had reason to believe the companies listed on their site had the potential for fraud. uFundingPortal also had reason to know issuer statements contained untrue statements or were otherwise false or misleading.  Additionally, 16 of the uFundingPortal issuers failed to file the names of all directors and officers of the issuers with the SEC as required by law.

Fraud 101

Danger BewareFINRA stated uFundingPortal listed suspicious issuers and offerings presenting the potential for fraud.  These 16 issuers;

“… had an impractible business model, oversimplified and overly-optimistic financial forecasts, and other warning signs. For example, 13 of the issuers – despite having different business models – all coincidentally listed identical amounts for their target funding requests, maximum funding requests, price per share of stock, number of shares to be sold, total number of shares, and equity valuations. None of these 13 issuers reported any assets or history of operations before May 2016, and each claimed an unrealistic, unwarrented, and identical $5 million equity valuation.”

Despite the obvious cookie-cutter approach, uFundingPortal continued to post issuer communications that management should have known were misleading for any potential investors and bogus.

Amy WanAs part of the enforcement action, uFundingportal has been expelled from FINRA membership and has waived certain rights to defend itself.  uFundingportal has accepted the settlement without admitting nor denying the findings.

Crowdfund Insider Senior Contributor and securities attorney Amy Wan commented on the action;

“This represents the first “warning shot” to funding portals to pay attention to compliance and diligence of their issuers. uFundingPortal received a relatively light hand-slap and is an example of gross incompetence and non-compliance, but serves as a warning to other funding portals that the regulators are watching.”

Georgia Quinn LendTech Angels LendLabGeorgia Quinn, another Crowdfund Insider Senior Contributor, securities attorney and co-founder of iDisclose added;

“Sadly there will always be bad actors especially when money is at stake, however, I see this as a success. This rogue platform was identified not only by FINRA but also by many members of the industry and the investing “crowd” as violating the regulations and conducting questionable activities. FINRA was able to act before any investor dollars were lost or any harm done. This shows that due to the transparency inherent in the crowdfunding industry, fraudsters can be efficiently rooted out, often before damage is done.”

uFundingportal was one of the earlier Reg CF crowdfunding platforms to receive the regulatory approval necessary to list securities under the new exemption. As late as October, no investor funds had transferred to any of the companies mentioned above. While it is encouraging the questionable operation has been shut-down it is curious as to how the platform ever received FINRA/SEC approval at all.

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