Massachusetts has a new securities department devoted entirely to monitoring the investment crowdfunding industry. This is an important milestone for an industry that depends on a high level of public trust in order to thrive.
The Internet Crowdfunding and Offering Watch Department, or I-CROWD, will initially focus on new Reg. D Rule 506(c) offerings. Effective September 23rd, Rule 506(c) allows for open advertisement of investment opportunities (see here for more info). I-CROWD will sift through such advertisements in search of fraud, which in a securities context captures not only outright fraudulent operations but also any type of knowing material misstatements or omissions. I-CROWD will also check on whether issuers have properly verified that only accredited investors (i.e. sufficiently wealthy) bought any of the securities advertised.
I-CROWD will expand its scope of enforcement to cover securities crowdfunding offerings as the SEC continues to implement rules under the JOBS Act, which chairman Mary Jo White recently told lawmakers was on the “front burner” and could be expected this fall.
Secretary of the Commonwealth William Galvin, founder of I-CROWD, expressed mixed feelings towards the JOBS Act:
“The JOBS Act may accomplish its intended purpose of allowing small businesses to raise capital and create jobs – and I hope it does – but it also sets in motion a much easier path for shady operators and outright crooks.”
Shady operators and outright crooks are a real concern, but as stated above securities fraud is not solely the province of scam artists. Knowing misstatements or omissions of material facts can land a company in a world of trouble, potentially resulting in complete rescission of all investment funds.
Avoiding the ire of the new Massachusetts watchdog is the concern of every issuer, not simply those that seek to take the money and run. Educating yourself on what and how you can and cannot say is of fundamental importance to an investment crowdfunding endeavor. Thankfully, the industry has had plenty of time to prepare for effectiveness of the JOBS Act. Organizations like CrowdCheck are ready and willing to help guide you through the labyrinthine regulations of a securities offering, allowing you to focus on building a successful enterprise, which is no small task itself.