The competent operation of the crowdfunding platform or portal is essential for the prevention of fraud in equity crowdfunding. Based on my experience with the ASSOB platform we have learned that it is very unlikely that fraudsters would be bothered jumping through all the hoops a competent platform or portal places in the path of each transaction.
Paul Niederer is the founder of the Australian Small Scale Offerings Board, or ASSOB. It is recognized the first equity crowdfunding platform in the world. Having completed about 300 raises since inception, CEO and Director Paul Niederer and his team know what it takes to run a fraud-free equity crowdfunding marketplace.
In a recent post to his blog entitled “Prevention of Fraud in Equity Crowdfunding,” he outlines the features of his platform that aid in limiting fraud. They are as follows…
- An Intermediary exists. In most white collar fraud there is seldom a buffer between the fraudster and the victim. ASSOB has independant accredited partners to hold the hand of issuers during the raise process.
- Upfront Fee paid. Fraudsters often dont have the funds to pay to get a fraud started
- Founders and Entity Due Diligence. ASSOB has two stages of due-diligence. The first stage involves “ASSOB Legal ” checking out the capital raising entity, the founders and the IP to ensure all of this is appropriate and in the right entity for investment.
- Marketing Materials Due Diligence. The second due-diligence stage is to check that the material used to market the offering gives a true and fair view. Any statements that misrepresent the opportunity are communicated as not appropriate and the issuer needs to resubmit.
- Own Crowd feedback. Before the offering goes live the issuers own crowd has an opportunity to speak up if they done believe what is offered is legit.
- External Crowd feedback. Once the offering goes live there is plenty of opportunity for the world at large to report anything that doesn’t stack up.
- Funding Targets & Escrow. Targets and escrow mean that funds are not distributed unless special conditions are met.
- 10 day Cooling off period. Investors can get their money back within 10 days of a transaction not needing to give a reason.
- 3 Directors and Auditor. Directors and Auditors have responsibilities under the law and they will usually tend towards protecting themselves before turning a blind eye to fraud within an organisation.
