Below is an article by Black Enterprise Magazine entitled “3 Challenges Facing Equity Crowdfunding Sites”
3 Challenges Facing Equity Crowdfunding Sites
By: Carolyn M. Brown, Black Enterprise Magazine
Nov 25, 2013
The SEC released its proposed rules for Title III of the JOBS Act this past October that will eventually allow average investors to participate in equity crowdfunding for the first time much as they would on E*TRADE or other self directed investment platforms. These rules will come into effect sometime next spring.
While this new legislation will open the doors for a wider base of investors and revolutionize access to capital, it will now also present unique challenges to equity crowdfunding platforms (ECPs).
Here are three of the top challenges:
1. SEC Regulations. The proposed rules for Title III are designed with investors’ protection in mind. To help negate the possibility of fraudulent activities online, ECPs will be required to register with the SEC as either a broker-dealer or a funding portal, the latter being a new type of SEC registrant. This means that no transactions can take place on an unregistered platform. ECPs will also be required to take further steps to lower the risk of fraud such as vetting all investors and entrepreneurs that participate on their sites to verify that they are not misrepresenting themselves for monetary gain.
ECPs will also be required to make educational materials available to investors as well as information pertaining to entrepreneurs and their offerings. The top ECPs have already taken these actions to varying degrees, either by posting the information on site or by providing communication channels to connect investors with entrepreneurs.
The SEC would prohibit equity crowdfunding platforms from offering investment advice or making recommendations on specific investment opportunities. ECPs would also not be allowed to hold or handle any investor funds or securities, nor could they solicit sales, offers, or purchases of securities that show on their websites.