SEC’s Position on Crowdfunding Ignores its own Horrific Record of Investor Protection
Consider us all shocked that SEC Chairman Mary Schapiro recently presented Senate Banking Committee leaders with a conclusion that the crowdfunding provision of the JOBS bill “needs additional safeguards to protect investors from those who may seek to engage in fraudulent activities.” It harkens me back to the many times I have seen a company foolishly hire an “expert” to advise the company as to whether they should in fact do a project that requires the very services of the same expert. One should be less than surprised when the consultant’s paid report concludes that the company should go forward with the project–and hire the “expert.” “Yes, naive company, you should hire us to do this project. The project is good and we are better so pay us more to do this.”
The Senate Banking Committee should be no less suspicious of Chairman Shapiro’s sage advice when she opines that what the bill needs is more presumably SEC led “safeguards.” Ditto the reaction of state regulators. Given the SEC’s own track record, I’ll take my chances with the crowd’s ability to ferret out fraud or simple bad business models. What the last five years have shown us is that the SEC is incapable of safeguarding investors even when members of the public actually tip the SEC off that fraud is occurring. Crowdfunding platforms include public discussions about the project being offered. It is all there and transparent: critical comments, bad answers from the project proponents–it is all there for the public to decide. Imagine if Bernie Madoff investors had the benefit of Harry Markopolos’ numerous warnings to the SEC that the investment was a scam, right there on the internet. The SEC received years of warnings and failed to meet any reasonable standard of safeguarding investors.
Crowdfunding sites already have mechanisms for the crowd to police the opportunities. Each of the existing bills confirm these processes and add to the protections. The very same objections were raised when eBay began online auctions. I feel more comfortable that a purchase on eBay is going to yield what I bargained for than purchasing the stock of an SEC regulated/SarbOx compliant stock. I’ll take the wisdom of the crowd over the competence of the SEC every time.