Crowdfunding Scams: Biggest Threat to Investors
Crowdfunding scams are this year’s top threat to investors, according to The North American Securities Administrators Association’s 2012 list of biggest investment traps.
Based on filed complaints, NASAA’s Enforcement Section compiles an annual list of ten new and persistent financial dangers to unsuspecting investors.
“There are scam artists out there ready to pick them apart,” said NASAA President Jack Herstein.
Crowdfunding is a relatively new threat on the annual list, which also includes real estate investment schemes and promissory notes as potential danger.
Hernstein pointed to the Jumpstart Our Business Startups Act, signed into law on April 5, as the potential instigator of crowdfunding scams. The JOBS Act will essentially transform the donation-driven crowdfunding sites to investment-based platforms, which could attract scam artists hungry for big bucks.
"The crowdfunding and Internet investing marketplaces in North America will develop and undergo major changes in the next year, and investors should monitor this emerging capital formation community with a wary eye," the report stated.
Hernstein added: “We’re concerned about scam artists targeting mom-and-pop investors."
In early August, the Massachusetts Securities Division charged a crowdfunding scam artist for swindling 20 individuals into investing in a $153,396 gaming company, reported Reuters.
JOBS Act provisions related to crowdfunding will not be available until 2013, when portions of the law will go into effect.