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State warns of crowdfunding fraud

State warns of crowdfunding fraud

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Published by: Crowdsourcing.org on May 19, 2012
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02/03/2013

 
State warns of crowdfunding fraud
By JAN NORMAN, May 17, 2012
Investors should be cautious about Internet requests that they invest inyoung companies, the California Department of Corporationssays. These emails may refer to crowdfunding, which allows small companiesto raise up to $1 million in equity funding over the Internet throughportals and websites registered with the Securities and ExchangeCommission. These sites include Crowdfunder, IndieGogo andSoMoLend. These sites are not what concern the Department of Corporations but rather unregistered sites.Crowdsourcing got a boost from a new federal law, Jumpstart OurBusiness Startups (JOBS) Act, which will exempt some small-businessfinancing efforts from securities regulations."Unfortunately, the potential for fraud is significant, so investors mustbe extremely cautious about crowdfunding opportunities," Dept. of Corporations Commissioner Jan Lynn Owen said in a statement.Congress has told the Securities and Exchange Commission to adoptrules to allow crowdfunding within 270 days. However, the SEC put outa release saying, until the rules are adopted, "any offers or sales of securities purporting to rely on the crowdfunding exemption would beunlawful under the federal securities laws."Owen said, "Once exempt, the new law means that crowdfundinginvestments will not be reviewed by regulators before they are offered tothe public, nor will they be required to provide the same level of disclosures to investors or regulators required of securities offerings.

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