The North American Securities Administrators Association (NASAA) has reported a sharp rise in crowdfunding in recent months in expectation of rules, which would allow small businesses to raise capital online. As a result, investors can expect to be inundated with crowdfunding pitches, legitimate or otherwise. State securities regulators conducted an analysis of internet domain names that found nearly 8,800 domains with crowdfunding in their names as of late November 2012 - up from less than 1,000 at the beginning of the year. Of the 8,800 websites, 2,000 contained content, over 3,700 had no content, and more than 3,000 appeared to be serving as placeholders to reserve a domain name for future use or sale. Since the signing of the Jumpstart Our Business Startups (JOBS) Act in April 2012, about 6,800 domains with crowdfunding in their name have appeared.
Crowdfunding consists of an online money-raising strategy that invites the public to allocate money, oftentimes through social networking websites, to help finance projects or causes. Through the JOBS Act, small businesses and entrepreneurs will be able to sell equity directly to investors in order to finance their business ventures as soon as the Securities and Exchange Commission (SEC) adopts rules. A crowdfunding equity raise can have an unlimited number of investors but is limited to $1 million. These rules are expected to go into effect sometime in 2013.
In anticipation of an increase in online fraud schemes stemming from the passage of the JOBS Act, NASAA has initiated a task force on internet fraud to monitor crowdfunding and other offerings over the internet. Currently, NASAA is coordinating multi-jurisdictional efforts to scan various online offering platforms for fraud, and where authorized, it will coordinate investigations into online capital raising fraud. In addition, NASAA members are being trained in the use of online data mining tools developed by the staff of the Enforcement Division of the New Brunswick Securities Commission to help identify potentially fraudulent websites. The task force is also working with NASAA's Investor Education Section to put together investor and industry awareness programs covering crowdfunding.
Have you suffered losses in a fraudulent or misleading crowdfunding deal? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.