Mark Anderson
Staff Writer- Sacramento Business Journal
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Investors can easily be ripped off by crowdfunding pitches, says the California Department of Corporations
in an investor alert.
The state’s investment and financing authority says investors must be skeptical of ventures they learn about on the Web.
“When you see an offering on the Internet — whether it is on a funding portal, in an online newsletter, on a message board or in a chat room — you should be cautious until you have done your homework and proven that it isn’t a scam,” said a news release from the department.
The move by the state to warn investors comes as crowdfinding will become legal for smaller companies under federal law sometime next year. The federal Jumpstart Our Business Startups Act exempts some entrepreneurs from securities regulations in order get investments from the “crowd.”
Crowdfunding is a money-raising strategy that can use email, social networking sites or solicitation to raise money for arts, causes or business.
“Unfortunately, the potential for fraud is significant, so investors must be extremely cautious about crowdfunding opportunities,” said Jan Lynn Owen, commissioner of the Department of Corporations.
“Before the SEC rules are adopted, investors should beware of promoters who jump the gun by offering investments through crowdfunding now,” added Commissioner Owen. “Once exempt, the new law means that crowdfunding investments will not be reviewed by regulators before they are offered to the public, nor will they be required to provide the same level of disclosures to investors or regulators required of securities offerings. Investors will need to prepare themselves to be bombarded with all manner of offerings and sales pitches.”
Investors with questions about crowdfunding issues should contact the Department of Corporations at 1-866-ASK-CORP or www.corp.ca.gov.
Mark Anderson covers banking, finance, accounting, technology, telecom, venture capital, hospitality, tourism and restaurants for the Sacramento Business Journal.
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