SORRY FOLKS, CROWDFUNDING IS A DUD

We regret to inform you that Mr. Crowdfunding is gravely ill, and is likely to suffer an early and untimely death. Yes, you might be revived, but even if revived he is likely to lead a feeble life.

A casual reader of all the crowdfunding blogs and websites which have proliferated will probably be astonished to read this diagnosis. Let us explain why.

Crowdfunding suffers from the problem of regulatory overreach. First, the crowdfunding paradigm requires that a license crowdfunding intermediary, or a registered broker-dealer, provide the intermediary services. Under the rules, the crowdfunding site is liable to investors from the statements or other inaccuracies in the offering documents. This liabilitiy is too huge to make the concept feasible.

Secondly, because crowdfunding (also known as Regulation CF) does not exempt offerings from compliance with state securities rules. Since these roles are often contradictory, compliance with one states rules may be incompatible with those rules of another state, limiting the company offering securities in one jurisdiction.

A similar situation existed prior to the adoption of the Uniform Securities Act. This was a model act developed by the legal community in cooperation with state securities authorities. The uniform securities act was adopted in the majority of jurisdictions, leading to more or less uniformity among the states in offering requirements. Yes, they were oddball states such as California, New York, and other locations with an overabundance of ego. Only with time will the inconsistencies between states adopting crowdfunding regulations be smooth out.

‘s as we will explain another blog. The state of California still has not adopted a crowdfunding statute, and the proposed statute is disastrous for going public.