Earlier this month, the SEC charged Daniel F. Peterson of Spokane Valley, Washington with fraudulently using the JOBS Act, which legalized crowdfunding, to entice and cheat investors.
The SEC still hasn’t passed regulations governing crowdfunding, but that hasn’t stopped companies, CEOs, and financial professionals from using the impending practice to increase their bottom lines.
Peterson allegedly told investors he was planning a stock offering that would render profits of up to 1,300% over 10 years by using crowdfunding to raise billions of dollars from the general public.
“The JOBS Act is intended to help small businesses raise capital, not to legalize fraud or give unscrupulous entrepreneurs a right to make false claims to fleece investors,” Michael S. Dicke, associate director in the SEC’s San Francisco regional office, said in a statement.
The complaint against Peterson is the first SEC complaint filed that accuses someone of using the JOBS Act to defraud investors. It isn’t the first crowdfunding complaint filed by the country’s regulators, however.
Massachusetts Commonwealth Secretary William Galvin filed two of the nation’s first crowdfunding-related charges in December 2012. In the lawsuits, the state securities regulator accused two out-of-state oil and gas companies of illegally selling private placement securities to Massachusetts investors. Gavin said he hoped the lawsuits would influence the SEC’s final rules over crowdfunding.
Though the JOBS Act was passed in 2012, SEC officials have said it’s impossible to set a date for when rules governing the practice (and crowdfunding) will be ready.
We have "a lot of learning to do,” David Blass, chief counsel for the SEC’s division of trading and markets, told The Business Journals.
In the meantime, let’s hope the commission continues to go after unscrupulous advisers and brokers who use the Act to cheat investors.
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