Crowdcheck Blog
Insights and information for online capital formation
All companies that accept investments under Reg CF need to provide an annual update to their investors, to be filed on the SEC’s EDGAR system on Form C-AR and posted on the company's own website. It’s really important that as an investor, you know what the company has done with your money in any given year.
We searched for all companies that completed a successful fundraising (filed a Form C-U), from the date Regulation CF launched in 2016 to April 30, 2017, and found 29.3% of them did not file a Form C-AR or post an annual report on their website, meaning approximately one in three investors did not receive any updates from the company they invested in. In…
This entry is filed under Crowdfunding, Disclosure, Section 4(a)(6), Blog
We are doing a new series on Investor Alerts, focusing on what investors should pay particular attention to when investing in early stage companies. Today’s issue is whether a company is in Good Standing. The SEC has highlighted this issue as one of the red flags that the offering might be scam.
Every company must file and pay annual taxes in order to maintain its good standing in the state in which it was incorporated. If a company is not listed as active or in good standing, it could have wide-ranging implications, including not being able to enforce its contracts, and not being able to issue shares.
We analyzed companies that had launched a Reg CF offering…
This entry is filed under Crowdfunding, Blog
Fraud – lots of people talk about it, but what is it? Many in the crowdfunding world see it as a bad guy running away with your money, and believe that the “collective wisdom” of the crowd is able to spot any scams before your money is lost. However, it rarely is that simple. The popular success story of the crowd spotting fraud, the Kobe Red scam, was actually led by a documentary team who played a major role in stopping the fraud before any money changed hands.
In addition, “fraud” in the context of securities offerings means something much broader than a Dr. Evil plotting to run away with your money. It also includes liability for misleading statements…
This entry is filed under Disclosure, Due Diligence, Fraud, Blog
We’re kicking off our Due Diligence Series with one of the most fundamental issues in crowdfunding due diligence: making sure that the shares being offered have been properly issued. Pretty basic, right? If the shares haven’t been properly issued the investment may end up being worthless.
Securities lawyers refer to properly-issued shares as being “duly authorized, validly issued, fully-paid and non-assessable”.
“Duly authorized” means that the shares have been issued in accordance with the law that the company was incorporated under and the company’s corporate documents (such as its certificate of incorporation), and that the shares issued are the sort of…
This entry is filed under Blog
It’s tempting to reveal very little information when trying to make a sale. We all want to put our best foot forward, and to reveal imperfections only when we absolutely have to. For example, when selling a car, a seller might want to reveal the car’s age and mileage, but be reluctant to reveal other imperfections, such as dings in the paintwork.
However, a study on information disclosure shows that more disclosure, even of defects, can result in higher prices. The study randomly split 8,000 cars into two groups – one with standard information, including age and mileage, and a second group with additional detailed information on the car’s paintwork. The…
This entry is filed under Blog
What is due diligence
Due diligence is the legal term for kicking the tires before you make an investment. We do due diligence all the time in our lives - checking prices and reviews online to make sure we get the best deals, talking to our children's friends to be sure they aren't bad influences, etc. Due diligence in investing is like that, checking that the company exists, the managers are who they say they are, and that the company is operating the way it says it is.
Why is due diligence necessary?
Unfortunately, where there is money, there is fraud. We see that in the highest levels of finance, and in donations that are not used appropriately. Even if…
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