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Secretary of State Connie Lawson Warns of Potential Dangers of Crowdfunding Investment Opportunities

May 30, 2012
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    05/31/12 Secretary of State Connie Lawson is warning investors to approach crowdfunding investment opportunities with great caution. Crowdfunding is an online money-raising strategy that began as a way for the public to donate small amounts of money, often through social networking websites, to help artists, musicians, filmmakers and other creative people finance their projects. Through the federal Jumpstart Our Business Startups (JOBS) Act, signed last month, small businesses and entrepreneurs will be able to tap into the “crowd” in search of investments to finance their business ventures.

“Crowdfunding has potential to work as a fundraising tool for legitimate start-up businesses. However, because there is also great potential for fraud, Hoosiers need to be aware of the risks of crowdfunding investments and should do their research before investing,” said Secretary of State Connie Lawson.

Congress enacted the JOBS Act last month and directed the Securities and Exchange Commission (SEC) to adopt rules within 270 days to implement a new exemption to allow crowdfunding. Until the rules are adopted, any offers or sales of securities claiming to rely on the crowdfunding exemption would be unlawful, according to the SEC.

“Investors should be wary of promoters offering investments before the new SEC rules are in place, which may not occur until January of 2013,” Secretary Lawson said. “Once the rules are adopted, crowdfunding investments will be free from initial review by a regulator. Furthermore, less information will be disclosed to investors and regulators than other types of investments. Investors should expect a considerable influx of sales pitches for crowdfunding investments.”

“Indiana Investment Watch is working to educate investors on the variety of risks associated with crowdfunding investments. Our national association, the North American Securities Administrators Association, has created a new task force to focus on Internet fraud and to monitor investment opportunities such as crowdfunding,” said Chris Naylor, Indiana’s Securities Commissioner. “Even with our efforts, consumers must remain vigilant when investing and watch for scams.”

Investors with questions about crowdfunding offerings should contact the Securities Division of Indiana Secretary of State before investing at (317) 232-6681 or online at IndianaInvestmentWatch.com. For more information, investors can view Secretary Lawson’s advisory posted on the Secretary of State’s website at http://www.in.gov/sos/securities/files/Crowdfunding_IN.pdf

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