Crowdfunding's presence on the Internet has exploded in recent months, and the North American Securities Administrators Association (NASAA) sees a big potential for abuse.
Nearly 8,800 domain names are now using the term "crowdfunding," up from less than 900 at the beginning of the year, according to a task force of state and provincial securities regulators. The data, released by the North American Securities Administrators Association (NASAA) on Wednesday, is in anticipation of rules by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to allow small businesses and entrepreneurs to raise investments online.
"Investors soon can expect to be inundated with crowdfunding pitches, legitimate or otherwise," Heath Abshure, NASAA President and Arkansas Securities Commissioner, said in a statement.
Crowdfunding, which NASAA recently named as one of its top 10 investor threats, 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 finance projects or causes. However, through the 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 once the SEC adopts rules to do so. The rules are expected sometime next year.
Indeed, the chief counsel of the SEC's Division of Corporation Finance, Thomas Kim, said in July that "crowdfunding is not yet legal until the commission appoints rules." Violations are already occuring, however, as the Enforcement Section of the Massachusetts Securities Division on Aug. 9 brought an action against a Boston-based firm for crowdfunding-related violations.
An analysis of Internet domain names by state and Canadian securities regulators found nearly 8,800 domains with "crowdfunding" in their name as of Nov. 30, 2012, up from less than 900 at the beginning of the year. Of these websites, about 2,000 contained content, more than 3,700 had no content and more than 3,000 appeared to be "parked" and serving as placeholders to reserve a domain name for later use or sale, NASAA says. Of the domains with "crowdfunding" in their name, about 6,800 have appeared since April 2012 when the JOBS Act was signed into law.
