The crowdfunding and advertising provisions of the JOBS Act have been under heavy fire from those who say they are an open invitation to fraud.
Let me say, I hate fraud. I hate it with a passion. But I disagree.
With regard to crowdfunding and the advertising of 506 offerings, the critics say it will allow fraud to be perpetrated on investors.
However, Reg D, Rule 504 actually permits advertising of offerings and does not require any specific disclosure. The JOBS Act actually has much more regulation of offerings. No audited financial statements are required in a 504.
Yet, as much as 504 has been abused, we do not hear any voices calling for its removal. We do not hear claims of an epidemic of 504 fraud.
Reg A now does not require audited financial statements. Where is the epidemic of Reg A fraud?
In fact, it can be harder to get a Reg A approved and marketed than a full IPO registration.
Even when the SEC came out with its rule on seasoning reverse mergers, they did not call for this path to capital be closed altogether.
Communication is good. Disclosure is good. Financing innovation is a good thing.
Let’s not let the bad actors once again ruin it for the rest of us.
Venture capitalists and bankers have had their way with small companies for too long. Let the rest of us play the game.
As most people are ethical and honest (society could not exist if this were not so), the gains from financed innovation will always outweigh the losses to those who are warped enough to trample on the law.
Consider the value built by recent social media companies — the hundreds of billions in market cap totally overshadows any losses to fraud in social media companies, right?
About John Lux
Securities attorney, former market maker, futures trader, IPO underwriter, investment banker, securities analyst, "quant," venture company president, venture capitalist. Degrees in quantitative analysis and law. Author of "How to Find a Home Run Stock," "How to Pick Hot Reverse Merger Penny Stocks," "How the Shorts Raid Your Stock, Destroy Your Company and What to Do About It," and "Bash the Stock Bashers."
John E. Lux
1497 Main Street #363
Dunedin, Florida 34698
"Theory without nerve doesn't lead to action -- and in the stock market, it's action that makes you money."
TV -- http://www.wtsp.com/news/local/story.aspx?storyid=114295&catid=8 (This site will load a video of the interview.)