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Aug 13, 2015 3:53 EDT

Equity Crowdfunding’s Huge Opportunity

iCrowdNewswire - Aug 13, 2015

On Tuesday, August 11th, the SEC charged 32 defendants in a $100 million dollar scheme to trade on hacked news releases. In 2014, total SEC enforcement actions reached 755 – the majority being Broker-Dealer- and Investment Advisor/Investment Co.-related. Will equity crowdfunding increase or decrease financial market irregularities? Will equity crowdfunding learn from this, prepare and become a better solution?

For starters, equity crowdfunding is a financial market without fluctuations and therefore cannot be manipulated in the way traditional markets can be influenced by news, malicious trading or fraudulent advice. Once a company lists an equity crowdfunding campaign, the price of the equity is set so there is no fluctuation to be influenced – but can the system be manipulated? In this age we have all come to accept that “everything” can be manipulated, hacked or misused for illegal gains, which brings me back to one of my favorite subjects of late: equity crowdfunding platforms are really stock exchanges.

The assumption today has to be that everything is going to be misused, so the question of whether it can or can’t is irrelevant and the proper conversation is best practices – in the case of equity crowdfunding, besides government regulation, how will the system regulate itself properly and implement best practices to avoid  manipulation? It’s not difficult, the guidelines exist and the talent and resources exist, now we just need to make sure the equity crowdfunding industry adopts the rules and implements the procedures necessary to provide a secure ecosystem for both the companies seeking investment and investors. The opportunity exists that the new Alternative Financial market avoids the costs and pain of government intervention, enforcement actions and fraud.

The first place to begin is with the most obvious problem areas – the SEC enforcement actions statistics can be found here https://www.sec.gov/news/newsroom/images/enfstats.pdf. It’s not a long list and to the point. Second, it’s time to re-evaluate, update and modernize practices that beg to be hacked, such as the press release services that were the focus of the latest major stock manipulation fraud – the years-old practice to review, edit, manipulate releases and schedule for future distribution is why this fraud could happen. But this is not only on the press release services it is on the companies that issue releases. The question is why does a PR or IR corporate department need a newsroom proofreading a release? If they misspell the CEO’s name then so be it, it’s on them. If they mention $500 million in one place and $50 million in another then so be it. If they can’t upload a release for immediate distribution then how is it everyone is too busy? Is it too difficult to get into the office by 7:00 AM to issue your release before the market opens that you need to schedule the night before? I am saying this not to pick on my industry but rather to point out that this is 2015 and it is time to grow up and move on, on all fronts. Companies, services, everyone. Upload a release, hit distribute/send, make it public immediately and it is worthless to hackers and stock manipulators.

In my last post I pointed to a Bankrate.com survey that showed 21% of Americans “don’t trust stock brokers or financial advisors”, could it somehow be tied to the fact that they are the single biggest group with SEC enforcement actions? Talk about damage from a few bad apples.

So the opportunity at hand is much bigger for the equity crowdfunding industry with both, the companies seeking investment and investors. Proper preparation, disclosure, compliance and know-your-customer on the company side and transparency, information and education on the investor side can be done effectively and efficiently – and go a long way towards making the Alternative Financial market a secure ecosystem for investing, keeping in mind that this is not only about a new industry or opportunity but rather a national and global initiative to jumpstart small and medium size company innovation, investment and ultimately employment growth. This is about a huge impact in underdeveloped regions and markets. The opportunity exists to get this right and that is huge for equity crowdfunding and its effect on the global economy.

Via iCrowdNewswire
Tags: , Blog
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