California Department of Corporations Advises Investor Caution With Crowdfunding Opportunities
SACRAMENTO, CA (May 16, 2012) – The California Department of Corporations has posted an Investor
Alert concerning the trend of “Crowdfunding” as a means of capital formation for small businesses. The Alert
today warns investors to approach crowdfunding investment opportunities with great caution and can be viewed
at the Department website at www.corp.ca.gov.
Crowdfunding is an Internet-based money-raising strategy that began as a way for the public to donate small
amounts of money, often through social networking websites, to help artists, musicians, filmmakers and other
creative people finance their projects. The new federal Jumpstart Our Business Startups (JOBS) Act, exempts
some small businesses and entrepreneurs from securities regulations in order to tap into the “crowd” in search of investments to finance their business ventures, but the practice is still regulated until the SEC issues final rules.
“Unfortunately, the potential for fraud is significant, so investors must be extremely cautious about
crowdfunding opportunities,” said Jan Lynn Owen, Commissioner of the Department of Corporations.
Congress enacted the JOBS Act last month and directed the Securities and Exchange Commission (SEC) to
adopt rules within 270 days to implement a new exemption to allow crowdfunding. Until the rules are adopted,
“any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the
federal securities laws,” according to a recent SEC release.
“Before the SEC rules are adopted, investors should beware of promoters who jump the gun by offering
investments through crowdfunding now,” added Commissioner Owen. “Once exempt, the new law means that
crowdfunding investments will not be reviewed by regulators before they are offered to the public, nor will they
be required to provide the same level of disclosures to investors or regulators required of securities offerings.
Investors will need to prepare themselves to be bombarded with all manner of offerings and sales pitches.”
Commissioner Owen also announced that the North American Securities Administrators Association (NASAA)
has created a new task force to focus on Internet fraud. The Internet Fraud Investigations Project Group was
formed to monitor crowdfunding and other Internet offerings.
Investors with questions about crowdfunding offerings should contact the Department of Corporations before
investing at 1-866-ASK-CORP or www.corp.ca.gov.
The Department of Corporations is California’s investment and financing authority and is responsible for the regulation,enforcement, and licensing of securities, franchises, off-exchange commodities, investment and financial services, independentescrows, consumer and commercial finance lending, residential mortgage lending, payday lenders, check sellers, bill payers, and debt reduction services. Consumers should contact the Department to check on the status of the companies, investments or other services they are considering and the licensing status of the person at the Department’s toll-free Consumer Services Office
at 1-866-ASK-CORP (1-866-275-2677) or at www.corp.ca.gov.