Crowdcube, one of the largest securities crowdfunding platforms in the world, recently decided to take legal action against an issuer that raised growth capital on its platform. In 2022, Student Rents raised over £466,000 from 179 investors for a 9.39% equity stake in for a company with a pre-money valuation of £4.5 million, according to the offering page. Apparently, the bulk of the money was committed off-platform, with just a fraction coming from investors participating in the offering on Crowdcube.
While there have been relatively few frauds in the securities crowdfunding sectors (but a good amount of failure), it is a rare occurrence for a platform to pursue an issuer in the courts. CI reached out to Crowdcube for a comment on the issue, and a spokesperson shared the following statement.
“We have conducted a thorough investigation into allegations that Student Rents, a company that used Crowdcube to raise capital, may have fabricated certain information which was provided to Crowdcube and investors as part of Student Rents’ funding round. As a result of the investigation, Crowdcube is taking legal action against the Company and its Directors to recover the investment made by Crowdcube investors. At the same time, we are in the process of fully refunding the 170 Crowdcube investors who invested a total of £23,173 into the business in late 2022. No Crowdcube investors will lose money as a result of this company’s fraudulent actions.
We are deeply disappointed that this situation occurred. We take the safeguarding of our investors’ capital extremely seriously and have stringent due diligence and compliance processes in place to protect against misleading claims and evidence. In the last 12 years, we have raised $1.5bn for 1,300 companies across Europe, providing our investors with access to high-quality investment opportunities.
We are confident that this was an isolated incident involving sophisticated forms of fraud and have every confidence in our due diligence processes, which we regularly review. We appreciate the trust that our investors place in us and will continue to work tirelessly to maintain that trust.”
As the amount of money committed by Crowdcube investors was small, I would not anticipate this being a precedent-setting event for the platform.
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