The crowdfunding panelists discussed what Mary Dent referred to as a “fundamental tension” between the democratization of finance and protecting unsophisticated investors. In traditional securities law, S.E.C. has protected Main Street consumers from especially risky investments, unless an investor can demonstrate they he or she is a sophisticated investor—using net worth, for example, as a proxy for sophistication.
Professor Bartlett agreed with the tension and added that they crowdfunding marketplace may suffer from the “bad apple” problem. Even if a vast majority of crowdfunding investors or entrepreneurs have good intentions, a small number of ‘bad actors’ could easily shake confidence in the crowdfunding brand or marketplace.