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Regulating the Dream

by admin on December 3, 2013

Everyone has a dream, goal or idea and they all tend to have one thing in common: the need for funding. Nowadays the path to finding most of the answers to life’s questions start at Google. So it seems fitting the trend of crowd funding would take off. What is crowd funding? Someone recognizes they have an idea, they figure out how much money they need and then they post the idea on crowd funding sites, such as Kickstarter or JOBS (Jump Start Our Business), where potential investors can pledge a certain amount to help individuals and teams reach their financial goal. Some of the sites limit the amount of time you have to reach your goal. For example if your goal is $40,000 in 30 days and by day 30 you are only at $20,000 you receive nothing and the investors retain their pledged investment. There are some sites that allow you to set a Target Goal and a Settle goal, which is the amount you would settle for if you don’t reach your real goal in the allotted time. Some sites offer investors a stake in a business venture or project they believe will offer return. Others simply donate just with the hope of witnessing the idea come to life and may receive a small reward.

Those investments are now being regulated by the Security Exchange commission. In order to better manage these transactions, the SEC has proposed guidelines. As noted in the proposal, “[These sites] permit Internet-based platforms to facilitate the offer and sale of securities without having to register with the Commission as a broker “ which explains the SEC’s desire to implement regulation laws. The SEC proposed that amounts raised are not to exceed $1 million in a 12-month period and individual investments be limited to $2,000 or 5 percent of the individual’s net worth, whichever is greater.

The proposal has also set guidelines on the issuer requirements. Another major area of concern has been the possibility of scams. Issuers taking the money for themselves since it isn’t regulated or reported like most investment funds. Under this Act, issuers must state the amount of money they wish to raise up front and a third party must hold them until at least 60% of the fund has been risen. The issuer also must obtain case management from a qualified third party, this can include registered broker dealers.

The proposal also encourages the public’s comments on the proposed guidelines. Do you think that these ventures need to be regulated? If so, how much?

Read the full proposal here and find out how to share your comments.


Editor’s Note: This is strictly an informative article. Investment Realty Company is not promoting crowd funding but simply providing limited information to our audience. There are many forms of investment and as a relatively new one, crowd funding, may have an increased risk of loss compared to other investment options. We take no responsibility for your decision to pursue crowd funding.

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