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Investor Advocates Fear New Crowdfuning Proposal May Hurt Indvidual Investors

Investor Advocates Fear New Crowdfuning Proposal May Hurt Indvidual Investors

This coming Friday, the SEC is set to finalize rules to let small companies raise money from individual investors through so-called “crowdfunding,” but pressure on the agency to make the measures more palatable to issuers has left some concerned that the investors are the ones who will ultimately lose when the business ventures fail.

Announced yesterday, the vote on the final crowdfunding rules comes about three and a half years after Congress called for them as part of the Jump Start Our Business Startups Act and just over two years after the SEC proposed measures to allow investors of all sizes to assist companies, via crowdfunding portals, raise modest amounts of capital.

The crowdfunding rules, a final cornerstone of the JOBS Act, will open up private securities transactions to a broad swath of investors who don’t meet the accredited investor threshold of $200,000 in annual gross income or at least $1 million in assets beyond the value of their homes. Proponents say the measures will unlock a new realm of fundraising, giving certain startups and small businesses that can’t attract other financing through more conventional channels.

But some investor advocates worry that even the proposed rule’s protections, such as individual investment limits and intermediaries such as the portals, won’t be enough to shield mom-and-pop investors from sinking more than they can afford into ventures that have a bigger risk of collapsing. There is already significant concern individual investors often take on substantially more risk then they should or can afford.

The experienced securities litigation attorneys at Colling Gilbert Wright are aggressively investigating and filing claims on behalf of individual investors who were recommended investments that were inconsistent with their stated goals and risk tolerance. If you have lost money investing in unsuitable investments, please contact our office today for a free consultation