Crowd funding is a method of raising money using the Internet through a large number of people who generally invest small amounts of money. Crowd funding has been successfully utilized by non-profit organizations and political campaigns but is now being reviewed by the Securities and Exchange Commission for use in business financing.
We believe crowd funding can significantly help small to medium size companies raise investment capital for opportunities where commercial banks, investment banks, venture capital firms and angel investors might not participate. Crowd funding can lead to a boom in entrepreneurship, innovation and employment.
For crowd funding to be successful and balance public interest, we support the requirement for entrepreneurs to (a) file a Form D with the Securities and Exchange Commission and (b) provide all investors with information otherwise found in an S-1 (or S-11) registration statement including audited financial statements. Furthermore, we do not believe that securities sold in crowd funding offerings should be freely traded and that such securities must be registered with the Securities and Exchange Commission before being publicly traded.
It presently appears that securities regulators and government officials are leaning towards prohibiting crowd funding as a means to protect the general public from fraud. We would argue that clear rules and regulations as well as very stiff penalties including prison time for any persons found guilty of misrepresenting or omitting any material facts in crowd funding offerings would help to limit fraud.