Increasing Protection for Crowdfunding Investors Under the JOBS Act
Jacques F. Baritot
Posted Sunday, September 8, 2013

Crowdfunding provides a convenient and simple way for companies,individuals, and other business entities to raise start-up capital from a large pool of investors over the Internet. Congress realized this benefit of online sales of securities and sought a way to relax the crowdfunding restrictions. To this end,Congress passed the Jumpstart Our Business Startups Act of 2012 with hopes of spurring job growth and bolstering small businesses. Although well intentioned,the Act contains a number of provisions that put unsophisticated investors at risk for fraud and manipulation. Fortunately, the SEC has the responsibility of implementing the Act through its rulemaking process, which allows the SEC to fill the gaps in investor protection and minimize abuses in crowdfunding. The SEC can most effectively protect against fraud by focusing its efforts on educating investors and ensuring that funding portal intermediaries serve as a protective barrier between issuers and vulnerable shareholders. If the SEC can successfully strike a balance between protecting unsophisticated investors and providing a simple and affordable means of raising capital, small businesses and their potential employees stand to gain the intended benefits of the legislation quite rapidly.