Photo: (AP Photo/J. Scott Applewhite)
The Jumpstart Our Business Startups (JOBS) Act may lead to an increase in investment scams, warns Chuck Jaffe of MarketWatch.The trouble lies in crowd funding as well as private offerings and a less-regulated capital raising process.
Crowd funding, as Jaffe explains, is a relatively new way for companies to raise money. Since receiving a loan is tougher now than in the past, this could be a simple way to raise some cash. Using social media or other means to make it known that the company is raising money, they can pool through a network and receive a small amount of money from a large amount of people.
Private offerings are commonly investment scams, even though there are many legitimate private offerings. The JOBS act is lifting a ban on public solicitation of private offerings, which may increase fraud attempts in private offerings. Along with this, a change in regulations will now allow companies to raise up to $50 million in a process that is lightly regulated. The previous amount for this process was $5 million, so this is a pretty hefty increase to say the least. With the anonymous nature of the internet, these issues could become more serious under the new JOBS act.
As always, anyone investing money should be extremely thorough in evaluating their investment to ensure that what they are investing in is legitimate. As Jaffe states, “When it’s easier to get away with fraud, more bad guys try.”
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