by David Drake
CFIRA representatives have already met with the
members of the Corporate Finance, Trading and Markets and Office of the
Compliance Inspection Divisions of the SEC.
Our interest was to
hash out new rules and regulations governing crowdfunding. The process is
ongoing, and this meeting was just the start. In this series, we’ll lay out
some of the important points covered, our concerns and suggestions.
Any workable
crowdfunding regulation will require an investor protection mechanism. We
advocate relying on transparency and fraud prevention mechanisms already in
place for charities and reward-based markets as a starting point. This basic
structure should then be augmented with additional protections such as: portal
registry, background and securities enforcement history check, required
investor education and due diligence requirements.
Some of the elements
suggested to protect investors are:
1. Funding portal
register, similar to Broker-Check. This should allow easy checking for
registration status;
2. Whistleblower
program similar to existing programs at the SEC, but scaled to the smaller
amounts expected;
3. Third party
escrow;
4. Due diligence
requirements with these key components:
a. Background and history check for registrant, scaled to funding amounts;b. Education of potential investors on crowdfunding generally;c. Survey investors individually to verify their understanding of the risk they are taking in general and on this particular deal;
As with all
investment vehicles, the trick will be to balance regulation against the cost
of compliance. Read more on BanklessTimes
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