The Wall Street Journal
Getting Going – September 22, 2012
On Crowdfunding and Other Threats
By Karen Blumenthal
Attention, investors: Congress has a deal for you!
Thanks to the JOBS Act of 2012, you soon will have new ways to drop your money into high-risk start-ups, private offerings, hedge funds and maybe even your neighborhood gelato shop.
The changes are intended to help small businesses raise funds more easily, but regulators and consumer advocates warn they could also unleash an explosion in investment scams. Last month, the North American Securities Administrators Association, an association of securities regulators, said it is especially concerned that two provisions could “unwittingly open a floodgate of fraud.”
Leading the group’s list of top investor threats: “crowdfunding,” or using the Internet to sell securities to individuals. Under the new law, small businesses will be able to offer up to $1 million in debt or equity through crowdfunding, selling either through a broker or a regulated third-party website.
Comments September 22, 2012
Imagine a ‘Financial Advisor’ calls you soliciting an investment available to only a limited number of investors. Your investment will be in shares of a private company that does not have to disclose its financial statements with any frequency. The value of the company will be determined by a separate company, hired by the company you invested in, that will occasionally determine the value of your shares. You cannot even sell your shares when you want to sell them. But, the ‘Financial Advisor’ tells you it’s a great investment as he pockets a 10% commission.
Instead, a Registered Investment Adviser recommends that you make an investment available to all investors. Your investment will be in a public company that has to disclose its financial statements no less than four times a year and file them with the Securities Exchange Commission. Investors vote in and vote out the board of directors that hire and fire key management. The value of the company will be determined every second of the trading day by millions of investors – so you will know the value of your investment down to the penny. You can sell your shares when you want to sell them. The Registered Investment Adviser is legally obligated by law to act in your best interests before his or his company’s best interests and is prohibited from collecting a commission. Instead, he collects a fee – the same way your accountant and attorney charge a fee.
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.