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Maine.gov> PFR Home > Securities Home > All Press Releases > Maine’s Office of Securities Issues Advisory to Warn Consumers about “Crowdfunding” Investments
May 16, 2012
FOR IMMEDIATE RELEASE
Maine’s Office of Securities Issues Advisory to Warn Consumers about “Crowdfunding” Investments
Maine’s Office of Securities issued an advisory Tuesday warning investors to approach “crowdfunding” investment opportunities with great caution. The advisory is posted on the Office’s website at www.investors.maine.gov.
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, small businesses and entrepreneurs will be able to tap into the “crowd” in search of investments to finance their business ventures. Under the new law, however, these investments opportunities will not be regulated or scrutinized for their legitimacy.
“The Office of Securities encourages business development and investment opportunities, but because the potential for fraud with crowdfunding is significant, investors must be extremely cautious,” said Maine Securities Administrator Judith Shaw. “Crowdfunding will be exempt from oversight---making it even more important for potential investors to do their research, checking references and asking the right questions.”
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 purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.
“Before the SEC rules are adopted, investors should beware of promoters who jump the gun by offering investments through crowdfunding now,” Administrator Shaw added. “Once exempt, crowdfunding investments will not be reviewed by regulators before being offered to the public, nor will they be required to provide the same level of disclosures to investors or regulators that are required of securities offerings. Investors should expect to be bombarded with offerings and sales pitches.”
Similar exemptions, such as the 1996 passage of the National Securities Markets Improvement Act (NSMIA) which prohibited states from reviewing private offerings made under SEC Regulation D Rule 506 before they were sold to the public, led to many cases of fraud and numerous scams. The North American Securities Administrators Association (NASAA), of which Maine’s Office of Securities is a member, reports these offerings are the most frequent source of enforcement cases handled by state securities regulators.
In issuing the crowdfunding advisory, Administrator Shaw also announced that NASAA has created a new task force to focus on Internet fraud. The Internet Fraud Investigations Project Group was formed to monitor crowdfunding and other Internet offerings.
Consumers with questions about crowdfunding offerings, or any other investment issue, should contact Maine’s Office of Securities before investing. The Office can be reached toll-free at 1-877-624-8551. Information is also available online at www.investors.maine.gov.
The Office of Securities is part of Maine’s Department of Professional and Financial Regulation, which encourages sound ethical business practices through the oversight of insurers, financial institutions, creditors, investment providers, and numerous professions and occupations for the purpose of protecting the citizens of Maine. Consumers can learn more about the Department at www.maine.gov/pfr.
Last Updated: May 16, 2012 11:31 AM
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