Department of Financial Institutions Concerned about "Crowdfunding" Investments

Nov 11, 2012

Kentucky’s Department of Financial Institutions says investors should beware of “crowdfunding” money-raising strategies.  The agency says some  of the on-line fundraising techniques could be used by scam artists.

What if you go on-line and invest in a small business---only to find out later the business never produced the goods or services it was formed to provide? That’s one of the concerns raised by state securities regulators, like the Kentucky Department of Financial Institutions.  They say crowdfunding is an on-line money raising strategy sometimes used by artists, filmmakers,musicians, and other people to finance their projects.  But the DFI stresses that crowdfunding investments can’t be offered legally until theSecurities and Exchange Commission adopts rules to permit them. New regulations regarding such investments will be finalized in 2013.

New federal legislation known as the JOBS Act was signed into law in April. It directs the Securities and Exchange Commission to write rules to determine how business owners can raise capital online.