WASHINGTON, D.C. – There is no easy answer when it comes to the perfect amount of regulation, based on the opinions expressed by a diverse panel at the 2015 Global Regulatory Forum in Washington, D.C. today.
How well equity crowdfunding is working depends on what you actually mean by crowdfunding, Crowdcheck CEO, and founder Sara Hanks said. Models targeting accredited investors work well, as do local initiatives while the rest is a mixed bag, she added.
The Deputy Director of Policy for the National Association of Securities Administrators (NASAA) said it is clear affinity groups are supporting the concept in the 25 states with effective crowdfunding legislation. Anya Coverman said 119 offerings from small businesses looking to leverage that affinity. The offerings come from many different sectors, she added.
“It is definitely a growing and involved market,” Ms. Coverman said.
John Berlau reminded the crowd that crowdfunding is not a new concept. Building upon earlier presentations citing examples from the Ming Dynasty and the Renaissance, Mr. Berlau, a Senior Fellow at the Competitive Enterprise Institute, said Ben Franklin and Henry Ford are among the famous Americans who tapped earlier variations.
Equity crowdfunding could work a lot better stateside, Mr. Berlau said.
“For decades red tape has got in the way (of progress).”
By liberalizing technology, equity crowdfunding can revive traditional community funding, Mr. Berlau added.
Just because there is strong interest, it does not mean we should rush in blindly en masse, Mr. Jofre said.
“Because we have to protect so many stakeholders it will take time.”
Mr. Jofre added that the technology must be seamless. Fragmentation will be a killer.
“Equity crowdfunding will not survive without it,” Mr. Jofre suggested.
Added regulation and disclosure does not necessarily curb malfeasance, several members suggested. Mr. Berlau cited research showing quarterly disclosure can actually make it easier to commit fraud. Just because data is posted does not make it accurate. Fraudsters can just as easily provide numbers every 90 days and create a false sense of security for investors.
There is actually more fraud being committed by publicly traded companies, Mr. Berlau said.
“Enron led to Sarbanes-Oxley and since then we’ve had Countrywide.”
Mr. Jofre said that the affinity many crowdfunding investors have for the companies they support means they are not “in and out” investors. They are already connected to the company anyway and crave opportunities to solidify that connection.
Whatever actions are decided on better be enacted quickly, Mr. Berlau said.
“We’ve waited four years. I don’t think entrepreneurs with the next Microsoft, which can benefit American society, can afford to wait.”
The simple fact that technology has the ability to lower professional fees to below one percent of the average raise makes them worth considering, Ms. Hanks said.
“Let the market decide if they want to buy.”
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