BOSTON--Massachusetts Secretary of the Commonwealth William F. Galvin said July 24 he has created a new unit in his office to monitor crowdfunding websites as well as general advertising of certain private placements in the wake of the 2012 JOBS Act.
“I do not begin to think that one state can monitor and police the internet,” Galvin said in a statement, “but I am going to take every proactive step I can to protect investors in the Commonwealth from those who would abuse the provisions of the JOBS Act.”
The federal Jumpstart Our Business Startups Act (P.L. 112-106) lifts the ban on lift the long-standing ban on general solicitation and advertising for some private securities offerings.
As a result, Galvin's office said, hedge funds, private equity funds, angel investments, and other small businesses can advertise on the internet, social media sites, television, and other outlets, Galvin's office explained.
The JOBS Act will also allow existing crowdfunding sites, such as Kickstarter, as well as other portals, to raise money by selling securities to average, unaccredited investors without federal and state securities registration.
He said the new unit will focus on assessing the impact of changes in the laws and rules that apply to unregistered offerings; gathering data about the types and quantity of public advertising used for unregistered offerings; and tracking how issuers of securities use new rules that allow general solicitation and advertising of non-public offerings.
The unit will also be directed to: monitor portals raising money in Massachusetts; collect data about the types of offerings presented; compile information on how issuers verify whether investors are qualified to purchase such offerings and evaluate those procedures; detect fraudulent offerings; and refer cases for enforcement action when potential fraud is detected.
“The JOBS Act may accomplish its intended purpose of allowing small businesses to raise capital and create jobs--and I hope it does,” Galvin said, “but it also sets in motion a much easier path for shady operators and outright crooks.”
Galvin's office told BNA July 24 it is not aware of any other state that has launched a similar effort.
In a release at that time, NASAA said an analysis of internet domain names by state and Canadian securities regulators uncovered almost 8,800 domains with “crowdfunding” as of Nov. 30, 2012, up from 900 at the beginning of 2012, leading an NASAA official to warn that investors could soon expect to be inundated with crowdfunding pitches.
NASAA spokesman Bob Webster told BNA July 24 that NASAA established an Internet Fraud Investigations Task Force in 2012 to monitor crowdfunding and other Internet-based investment frauds but that he is not aware of any other individual states that have created a separate crowdfunding unit.
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