Crooks 'licking chops' over crowd-funding bill, claims NASAA head

Crooks 'licking chops' over crowd-funding bill, claims NASAA head
Herstein worried that easing of rules governing web-based raising of capital will lead to fraud
DEC 01, 2011
State regulators are shooting back at a House bill that would exempt small, private securities offerings sold over the Internet from securities registration requirements. These online offerings, sold through a process known as crowd funding, have gained attention as policymakers focus on problems small businesses are having in obtaining capital. The bill, HR 2930, sponsored by Rep. Patrick McHenry, R, N.C., would exempt crowd-funding offerings from registration if the deals were limited to $5 million in size, and no more than $10,000 per investor. But the bill would open the door to fraudsters, said Jack Herstein, assistant director with the Nebraska Department of Banking & Finance, and president of the North American Securities Administrators Association Inc. Under the bill, neither the states nor the Securities and Exchange Commission would have to be notified of a filing, he said. The National Securities Markets Improvement Act of 1996 removed state registration requirements for securities but let states require notice filings from private issuers. It also kept state regulators' anti-fraud powers intact. Most private placements are sold under an exemption known as Regulation D. "At least with a Reg D offering, we know someone is out raising money and they're limited to 35 nonaccredited investors," Mr. Herstein said. Under Mr. McHenry's bill, most investors would probably be nonaccredited, he said. "If I'm a crook, I'd be licking my chops over this," Mr. Herstein added. In response to the bill, NASAA last week formed a special Small Business Capital Formation Committee to look into crowd-funding offerings. The House Financial Services Committee is taking up the McHenry bill Wednesday. It is expected to add a requirement that sellers of a crowd-funding deal file a notice with the SEC and that the SEC make the notice available to the states. A spokesman for Mr. McHenry declined comment.

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave