The Unseen Perils of Crowdfunding for Investors

November 26 2017

By The Wall Street Journal

Letting small investors buy shares in startups sounds like a great way for budding companies to raise cash. But it could be dangerous for the people putting up the money.

In a paper published in the journal Business Horizons, Melissa S. Baucus, formerly of the University of Otago in New Zealand, and Cheryl R. Mitteness of Northeastern University say it’s easy for swindlers to circumvent safeguards in the Jumpstart Our Business Startups Act, the 2012 federal law allowing startups to raise up to $1 million annually from retail investors.

“There’s too much opportunity” for Ponzi schemes and other shady projects, says Dr. Baucus, now at Texas State University.