Crowdfunding or Fraudfunding? Social Networks and the Securities Laws—Why the Specially Tailored Exemption Must Be Conditioned on Meaningful Disclosure

BY Thomas Lee Hazen

Social networks have been used as a medium for financing films and other performing arts, as well as for charitable solicitations. Crowdfunding can also be used to finance small business enterprises, which, in contrast to other crowdfunding efforts, is a highly regulated activity by virtue of the securities laws. Securities laws are designed to provide investor protection. This Article provides an overview of the applicable securities laws and evaluates the various proposals and the recently enacted JOBS Act which purportedly provides a workable exemption for crowdfunding that would not unduly compromise investor protection. The Article examines the proposals and ensuing legislation and concludes that the only appropriate exemption for crowdfunding is one conditioned on meaningful disclosures about the company and the terms of the offering.

DOWNLOAD PDF | 90 N.C. L. Rev.1735 (2012)