Regulators Warn Against 'Crowdfunding' Fraud
Securities regulators are investigating a handful of possible fraud cases on the Internet, where people may be raising money illegally through so-called "crowdfunding." The Securities and Exchange Commission is warning people to beware of new investment opportunities online.
SEC Regional Director Marc Fagel, based in San Francisco, says he is wary of a new buzz word. "Crowdfunding, crowdsourcing, crowd- whatever. I think that anyone who is seeing those words thrown around out there needs to be a little careful at 'what are they really selling me?'"
The SEC is working through new rules right now, as part of the Jumpstart Our Business Start-up Act (JOBS Act), to deregulate securities law and make it easier to raise money through the web and TV.
Fagel says until the new rules are finalized later this year, such advertised offerings are not legal yet. But, he warns, whenever a legal change is on the way, there are people ready to take advantage of confusion.
"A few years ago, everybody said be a part of my hedge fund," Fagel explains. "Everyone wanted to be a part of a hedge fund, and didn't know what a hedge fund was. And a lot of these were just out and out Ponzi schemes."
Fagel was speaking to a room of investors and securities lawyers at SEC offices in downtown San Francisco. He pointed out that his office is low on staff to conduct investigations. The room chuckled at the admission, which is a well-known fact to those in the investment community.