If you had asked me a year ago if crowd investing would ever become law I would have told you absolutely not. There was no way Congress, which had been so hard on the regulators for allowing the Madoff disaster, would open the floodgate for all sorts of fraudulent activity. Never would Congress fall for the argument that the average person would do better due diligence online than a registered broker-dealer or a lawyer. But this afternoon with the Senate vote we have entered a new era.
The Jumpstart Our Business Startups Act (the JOBS Act) contains many provisions but the unmonitored collection of funds by small businesses over the internet is the most frightening. Without any advice and sometimes little understanding of financial markets people will be able to log onto their computer and invest in a small untried business like they download music.
The SEC will need to write rules for this process, so there may still be time to put safeguards in place. One of the places where this can occur is with rules for broker-dealers and banks that act as custodians for the money invested.
Let’s hope that the regulators put in place stringent requirements on how and when the funds can be accepted and released.
I am sure this is just the beginning of a wonderful Spring.
(C) Copyrighted 2012 Sharon M. Davison, May use with attribution.