Crowd funding warning from Washington and the SECon May 15, 2012 @ 4:35 pm (Updated: 8:45 am - 5/16/12 )
So far, websites like Kickstarter have let individuals donate money to start ups trying to get off the ground. Under the JOBS Act, you will be able to make a true investment and gain capital in the company.
There is just one problem. It will be at least next year before the provision goes into effect. The SEC has been given a nine-month deadline to create rules and regulations to make it happen.
"Any of these offerings that pretend to be part of the JOBS Act or something like that are wrong. They're illegal," says Bill Beatty, the Securities Administrator at the Washington State Department of Financial Institutions.
Beatty says until he sees how the SEC sets up the new "investment portals" required for crowd funding, he is not sure what the state might be in for.
"We are concerned because state regulators are preempted from regulating these new crowd funding offerings, so it's going to entirely be done at the federal level. And, we've all heard and seen the difficulties the SEC is facing right now," says Beatty.
There is one group of investors who is already dipping their toe into the crowd funding pool in a pretty big way. They are known as "angel investors."
Generally, a company cannot sell stock unless it registers the stock and has an initial public offering. Exceptions are made for wealthy, private investors who are accredited.
Local attorney William Carleton works with the Angel Capital Association. He says angels are different from typical venture capitalists because they often do not expect to see much of a return on their investment.
Angels are split over whether the new rules on crowd funding are a good idea.
"Some don't think that it's something the general public ought to engage in because there's too much room for fraud. These kinds of start-up ventures are the riskiest, and most of them end up failing, and so people will lose their money," says Carleton.
On the other hand, Carleton says other angels think crowd funding should be open for anyone to invest.
While angels like to bolster new companies in the fields that interest them, often the electronics industry, the Internet and healthcare, Carleton thinks most individuals will be more interested in owning a piece of a local business they can visit everyday.
There is at least nine months before the new rules can be implemented. If this all sounds interesting to you, Beatty says you have plenty of time to do your homework.
"The same old maxim applies. Investigate before you invest. If it sounds too good to be true, it probably is. Be careful and thoughtful with what you do with your money."
And, Beatty adds, it is never a good idea to send a cashier's check to Nigeria.
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