HARAHAN, La. (12/6/12)--The Louisiana Credit Union League has alerted credit unions in the state that the Louisiana Office of Financial Institutions (OFI) is warning investors and businesses to use caution in working with any crowdfunding investments.
Crowdfunding refers to online fundraising used as to donate small amounts of money through social networking websites to help artists and other creative people finance their projects (eNews Dec. 5).
A new law will allow small businesses and entrepreneurs to tap into the online crowdfunding to search for investors to finance their business ventures. However, businesses cannot seek crowdfunding investors until after the Securities and Exchange Commission (SEC) establishes rules for the investments.
Once SEC adopts its rules, crowdfunding investments will be exempt from having to register with federal and state governments. That means they will not be required to provide the same level of disclosures that are required of registered securities offerings. As a result, OFI said, "investors can expect to be bombarded with all manner of offerings and sales pitches."
Also, businesses pursuing funding through the exemption may be misled by unqualified representatives proposing to manage their new crowdfunding efforts.
For more information, use the link to OFI's website.