What Every Investor Should Know About Crowdfunding
Crowdfunding investments cannot be offered legally until the SEC adopts final rules to permit them. Beware of offerings that seek investments immediately.
All investments have risk, but small business investments and start-ups have even greater risk than normal.
The information about the investment is limited to what is provided through the funding portal. Investors may need to rely on their own research to determine the issuer’s track record.
Because state regulators are not allowed to review crowdfunding issuers or their offerings, full and complete disclosure may not be available to investors.
Investors may have limited legal ability to take action against the issuer and / or funding portal should the investment not perform as represented. Due to limited regulatory oversight over these offerings, investors may be left on their own to pursue costly private lawsuits when things go wrong.
It also may be difficult or impossible to resell these securities due to the lack of a secondary market.
Funding portals must be registered with the Securities and Exchange Commission (SEC), belong to a self-regulating organization (SRO), and comply with other rules the SEC may issue.
Crowdfunding portals claiming an accreditation or “seal of approval” from a standards program or board may not be legitimate.