November 12, 2013
The main benefit of crowdfunding is purportedly job creation, with the ease of funding small businesses being a gateway for those businesses to grow and thus, hire more Americans. All agree this is a worthy goal.
The trick is to balance this desire to create jobs with the equally important goal of protecting investors against fraud. History demonstrates that when new programs like this are established, sadly, some people will seek to take advantage. History also shows that the government can do only so much to stop these unscrupulous individuals. Where government has done best is when it has established strict protocols that industry must follow, then stepped back and allowed the legal system to handle those who break the rules.
I would argue strenuously that the type of system described above is the only way to balance the two goals inherent in crowdfunding. Specifically, I would suggest that the government force portals/platforms to follow the same type of disclosure rules present for underwriters handling initial public offerings (IPO's). This means that the platforms/portals would bear the cost of determining whether the people running businesses the portals are putting on their sites have had any previous litigation history, for example. The only way to make a portal/platform care is to give them a true financial incentive to do so, i.e., make them responsible for failing to disclose material information to investors.
I urge you to take this simple yet effective action.