Responding to More Useless Drivel Disparaging Crowdfunding Law
Well, here we go again. Just when you thought that those commentators without a single novel idea had been embarrassed into going back to their ivory towers to find a clue, along comes this piece from John Wasik further criticizing the new crowdfunding law. Maybe John missed Dara Albright’s recent blog where she addressed Ross Sorkin’s equally dense criticisms of the JOBS Act in the NYT. I guess not. Now comes Wasik to make the bold prediction that fraud and misrepresentations will be made by some unscrupulous characters in connection with securities offerings. I will make an equally profound assessment and predict that a natural disaster will occur somewhere in the remainder of 2012.
Whereas Sorkin uses actual SEC registered abuses as evidence that we need the very same SEC registration process that the crowdfunding law modifies, Wasik seems to suggest that the crowdfunding exemption is a crazy example of “deregulation” because the very regulation established under the crowdfunding law involves regulators (the SEC) who do not have the resources to regulate. I’m not kidding. Go back and read it. Maybe Wasik should be working on SEC budgetary issues rather than weighing in on crowdfunding.
Similar to Sorkin’s “the existence of the broken system proves we need the broken system” argument, Wasik believes we should continue to require start up companies to make costly, duplicative and time consuming state filings with state regulators (his theoretical “pack of watchdogs”) in order to preserve the proper amount of regulatory scrutiny. Well, God knows these filings have been soooo successful in rooting out examples of fraud in the past. I mean just think about….wait…I can’t think of a single instance where this “pack of watchdogs” has rooted out examples of the fraud Wasik contemplates. Wasik wields his pen to prove that the states are angered that these duplicative filings will no longer be required. Naturally, their concern is an issue of “investor protection” and has absolutely nothing to do with the fact that they will not be able to collect their filing fees on crowdfunding transactions (“Blue Sky” should be renamed “Green Sky”). Please.
Back to reality. Financial “experts” please put away your papery straw men. Whether through a crowdfunding portal or the New York Stock Exchange, if:
1. You do not know the management team of the company or their history;
2. You do not understand the business model, the technology and the competitive landscape; and
3. You are investing money that you cannot afford to lose.
DO NOT MAKE AN INVESTMENT. Crowdfunding has nothing to do with this simple logic.
If you are counting on the SEC, state regulators or a “financial expert” to have done this work for you or to have ferreted out untruths, please wake up and read the newspaper. History should tell you that this is not being done, has never been done and it will not be done in the future no matter how many regulators you throw at it and no matter how pollyannaish your average NYT or Forbes commentator might be. The reality is that members of the “crowd” figured out the Madoff scam and most often have been the whistleblowers that have exposed fraud. Even when tipped off, the regulators are mostly ineffective at halting it. As I have said before, given the choice of regulators or the crowd, I’ll take my chances with the crowd. In the interim, let’s not let clueless commentators take away from the fact that Congress and the President just took a huge step in updating laws that only hinder the ability of good companies to get funding and regular people to benefit from that.