The Symposium’s second panel discussed the JOB Act’s crowdfunding exception. Our morning panelists are joined by Mary Dent, Jerome Engel, and Eric Brooks.
Eric Brooks sees investors defrauded everyday in his job with the SEC. As a result, the cynic in him says that the crowdfunding provisions do create greater problems than the solve. Fraud is even easier to perpetrate over the internet and the Act sanctions the funding portals. The SEC will likely face an increase in customer complaints from investors who lose money through crowdfunding investments which then have to be researched. Nevertheless, the Act and attendant regulations can work well if protections are preserved.
Robert Bartlett analogized crowdfunding to the ability to generally solicit investments up to a million dollars in the 90’s. That freedom led to significant instances of fraud. There is a definite potential for this act to be a repeat of those failures.
But as Mary Dent presented Ebay as an example of companies proving that trust based systems can work. The risk of fraud is overstated. The actual problem in crowdfunding is more fundamental- people don’t know what it means to own a security. People understand when they give money to a band and get a copy of the album in return but equity is different. The fraud protections give investors financial information about the company but that belies the fact that most start ups fail anyways.
Martin Zwilling agreed that naivete is the issue not fraud. Most angel investors like himself do not make money but they are at least equipped to analyze the market viability of start up companies.
Eric Brooks pointed out that no matter how much information you give to investors they will still sometimes make poor decisions. But there are a lot of sophisticated investors who are not “accredited investors” and this law is good for giving those people the opportunity to participate in the market.
Stay with The Network for further updates from the Berkeley Business Law Journal JOBS Act Symposium.