FINRA Alerts Investors to Crowdfunding Risk
A FINRA Investor Alert covered crowdfunding rules and processes. The guidance alerted investors to the risks and rewards of investing in early-stage businesses. "Crowdfunding" generally refers to the use of the Internet by small businesses to raise capital through limited investments from a large number of investors. Under new rules effective May 16, 2016, the general public can invest in capital raising by start-up companies.
The FINRA Investor Alert encouraged investors to be aware:
- that crowdfunding investments carry significant risk, as some or all of the investment can be lost;
- of the limitation on how much they can invest, which depends on net worth and annual income;
- that they will be limited in their ability to resell investments for the first year, and they may need to hold investments for an indefinite period of time;
- of the required disclosures under the JOBS Act by crowdfunding companies and their broker-dealers and funding portals; and
- of the possibility of fraud.