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11/15/2013 McKinsey & Co - Why crowdfunding appeals to the Middle East
12/30/2013 KQED Radio - Richard Swart - A How-To Guide to Crowdfunding 12/20/2013 Gulf Times - Silatech Hosts Seminar...

Beware of SEC Enforcement Actions Against Crowdfunding Platforms

The following post comes courtesy of Ellenoff, Grossman & Schole and should be read by all crowdfunding platforms

On November 10, 2014, the SEC announced one of the first enforcement actions against a crowdfunding platform, Eureeca Capital SPC, a company incorporated in the Cayman Islands and based in Dubai, for failure to implement procedures reasonably designed to prevent U.S. investors from accessing and investing in securities through its website. Despite a disclaimer that Eureeca's services could not be used by U.S. persons, users who selected "United States" as their country were allowed to register on the Eureeca website and gain full access to offering materials, and under certain circumstances, deposit funds with Eureeca for the purpose of investing. All visitors to the Eureeca website were permitted access to the names of issuers and amounts of offerings on its site, as well as informational videos; after registering, potential investors could access additional information regarding offerings and were sent automated emails detailing specific offerings. Eureeca did not require users to represent they were accredited investors during registration, its website did not contain any disclaimer or definition of "accredited investor", and communications to investors requesting confirmation of their accredited status did not define or otherwise explain what the term "accredited investor" meant.Screen Shot 2014-12-06 at 10.12.48 AM

The SEC determined that Eureeca had acted as an unregistered broker-dealer and violated the securities laws by generally soliciting U.S. investors prior to the implementation of Rule 506(c) in September 2013 and, after that Rule 506(c)'s implementation, failing to take reasonable steps to verify that purchasers of securities through its website were accredited investors. Eureeca was ordered to cease and desist from committing or causing any further violations of U.S. securities laws and was assessed civil penalties totaling $25,000.

Since the passage of the JOBS Act, the SEC, states and FINRA have been closely monitoring accredited investor crowdfunding platforms, with a particular focus on those platforms that generally solicit investors. In addition to Rule 506(c) compliance, particular issues of regulatory interest include the platforms' reliance on the exemption from broker-dealer registration; the accuracy of representations regarding the issuer's business; and the disclosure of the platform's compensation. Companies intending to form or currently operating crowdfunding platforms should work closely with securities lawyers to draft appropriate language for their websites and strictly adhere to the regulations implemented by the SEC to avoid sanctions.

Recommended action: The ability to respond quickly, credibly and effectively to regulatory inquiries depends upon recordkeeping. Platforms should therefore not only implement and maintain recordkeeping policies but also test that the information is readily available if requested on short notice. Records to preserve should include investor and issuer information in secure format (our intellectual property team can provide guidance on state-of-the art protocols); all agreements among parties, offering materials and subscription documents.

If you need more information regarding this, the team at Ellenoff, Grossman & Schole is available to discuss the information in this Alert with you. Please don't hesitate to contact the attorneys below or the primary attorney with whom you work.

Douglas Ellenoff ( This email address is being protected from spambots. You need JavaScript enabled to view it. )      

Joan Adler ( This email address is being protected from spambots. You need JavaScript enabled to view it. )

David Selengut ( This email address is being protected from spambots. You need JavaScript enabled to view it. )      

Adrienne Ward( This email address is being protected from spambots. You need JavaScript enabled to view it. )                             

Michael DeDonato ( This email address is being protected from spambots. You need JavaScript enabled to view it. )

The New Broker Dealer - More Focused Brain Work and Less Manual Labor

Broker dealers of the distant past (circa 2010) who worked in the private capital markets never thought their jobs would change.  They thought only other industries could be disrupted by the Internet and technology.  They assumed investment banking was secure because securities regulations written in 1933 and 1934 were fixed in place.  It was generally assumed that public solicitation of private stocks would never be allowed.  Screen Shot 2014-07-24 at 9.37.23 AM

Fast forward to 2014 – Parts of the JOBS Act are in full effect, general solicitation has been lifted, and the average American is about to be allowed to partake in the private capital markets.  Everything is changing and some are still in denial.  Remember what happened to most travel agencies in the 1990's?  

Unlike travel agencies that could fully be displaced by websites, broker dealers play a critical role in the capital markets. However the time has come for them to make some radical shifts in how they approach their businesses.  Here are three things every broker dealer needs to be working on now to avoid the same fate as the travel agents who said "why would anyone buy an airplane ticket himself? It’s too difficult!"

  • Much time and resources will be spent on background and diligence checks for the many new issuers entering the market.  Looks at ways to outsource this.  Leverage powerful and scalable due diligence technologies that go way beyond just the basic "bad actor" checks. This will allow BDs to focus their time and resources on what they do best: curating deals, matching them to investors, and raising serious cash.Screen Shot 2014-07-24 at 9.36.46 AM
  • Look at every step in the transaction process to see how new technology solutions can replace skilled professionals needing to shuffle paper or run process.  In doing so, BDs can increase transactions and decrease the number of hands that have to touch everything.  Nothing replaces the judgment of seasoned professionals in making the decision to work with a client or not.  But seasoned professionals shouldn’t conduct their work like it is 1985.
  • Use new sourcing tools for high quality deal flow.  Crowd finance platforms are coming online, entrepreneurs are listing their offerings with them, and deals are getting funded. Use these platforms to quickly and easily find companies that have proven they have a market, a customer, can raise money, and can execute.  Most likely these companies will need follow on capital.  Most likely the crowd won’t have deep enough pockets for follow on rounds.  This is where BDs can acquire deal flow and raise money for these firms faster.  Consider ways to partner with crowd finance platforms for early access to these deals.  More deals means more money in the BD’s pockets.  


Broker/Dealers and securities professionals in the US and abroad need to heed this advice.  Those who focus on this intensely over the next 12-18 months are the ones that will thrive in the future.  Those who do not, may be wondering what happened to their businesses 2 years from now. 

Crowdfunding Platform in Romania


During Jason Best’s recent visit to Romania as part of a US State Department mission, he met Crestemidei, one of three Romanian Crowdfunding Platforms.  This women-led team has been doing pioneering work and we asked them to write a guest post, which follows.   This is an example of hard work and early traction.  If you are creating new crowdfunding platforms or services and have stories to share, please send them to us. Screen Shot 2014-04-28 at 5.22.41 PM ( is a Romanian crowdfunding platform based in Cluj-Napoca (the so called Sillicon Valley of Transylvania) set up by 3 young women and launched on December 2012. The idea behind it all was to turn innovative and creative ideas that generate benefits to community into reality – the motto is ‘We change Romania for the better, idea by idea!’

To test the concept and to collect the funds needed to come up with the platform, the founders ran their own campaign on their own platform (beta version of at that time):

  • The financial goal of the campaign: 1000 EUR in 28 days.
  • The outcome: 41 Romanians (Honorary Founding Members) contributed with 1076 EUR - enough to launch the platform and create the basis for an innovative start-up in Romania.

It was probably the only crowdfunding platform in the world to be launched through a crowdfunding campaign which provided credibility and first hand experience with implementing the concept in a new market and laid the foundation for the growth of the industry in Romania. is a fixed funding and reward-based crowdfunding platform, and the team applies selection criteria before publishing the campaigns (innovation and positive impact in community, financial goal, project team expertise). Anyone can finance innovative projects borne in Romania from 17 domains ranging from writing&publishing, theater to technology, environment, health.

Few key figures (valid as of April 2014):

  • 24 campaigns on the platform: 3 active, 11 successful, 1 campaign was purchased entirely by another company and 9 were unsuccessful
  • Projects’ financing rate: 55%
  • Aprox 14.000 EUR worth of donations
  • No. of contributers: > 600 (2013)
  • Unique vistors: > 50.000 (2013)

The founders are:

  1. 1.Catalina Amihaiesi -
  2. 2.Oana Man -
  3. 3.Judit Katona -

The team also includes Oana Rus, Projects Coordinator, and Catalin Vasile, business angel.

In case you would like to get in contact with us, drop us un email at This email address is being protected from spambots. You need JavaScript enabled to view it. . We are also on twitter, G+ and Facebook:

CCA Survey of Findings from an Audit on the US Crowdfunding Ecosystem

Recently, the CCA Group performed an audit on the crowdfunding ecosystem in the United States. Speaking with industry experts, performing original research, and updating
a database of all active and inactive crowdfunding portals in the country, we were able to develop a “30,000 foot” view of the ecosystem, including a closer look at the types of platforms in the space (e.g. lending, reward, equity, etc.), the verticals (e.g. business, non-profits, etc.), and comparative social metrics. In this post, will take a look at three takeaways.

Niche Plays Tend to Survive

Business programs around the world often teach that startup businesses who identify and exploit a niche have a much higher chance of surviving. In their paper New Firm Survival: Industry, Strategy, and Location, authors Sterns et. al. write “niche purveyors were found to have increased survival chances” and from our initial analysis, this rings true among crowdfunding portals in the United States. When looking at the failure ratio of crowdfunding platforms by vertical, those platforms that could only be described as crowdfunding for “everything” had a 48% chance of failure. That is, of the platforms from our previous database and with the new platforms our team was able to identify, 48% of the platforms that were set up to fund “everything” were no longer active as of the time of this study. Conversely, though there are a few funding portals that focus exclusively on environmental causes, all of the portals that we’ve been able to find in this vertical are still active. See figure 1 for a breakdown of the failure rates of US funding portals by vertical.

Funding for Businesses is a Crowded Part of the Ecosystem

Our study breaks the ecosystem down into seven verticals: everything, nonprofits and causes, creative, environmental, businesses, science, and other. Of course, these verticals are somewhat imprecise and the classification of an individual funding platform into one of these categories involves some subjectivity on the part of the researcher. Nevertheless, one striking takeaway from our study is that the space for business funding platforms is crowded. Our study found that the “business” vertical had more than double the number of platforms than the second-highest category: non-profits & causes. On the opposite in of the spectrum, the least crowded parts of the crowdfunding ecosystem in the United States are funding platforms that focus on science and environmental issues. See figure 2 for a visual representation of the crowdfunding ecosystem in United States by vertical.

The Major Players Have all the Social Proof: a Natural Oligopoly? 

When our team looked at some of the comparative social metrics between platforms in United States, we were struck by the presence of outliers. Looking at the descriptive statistics (see figures 4 and 5) of the active platforms that have at least one “like” on Facebook, the kurtosis (a measure of skew) is enormous, signaling that the distribution of these data is nowhere near normal. The same can be said for the audit of these platforms’ presence on Twitter. Instead of a somewhat normal distribution, there are a few players in the top quartile that dominate the crowdfunding presence on Facebook and Twitter. This is an important consideration given the impact that social proof has. It builds trust, attracts funders, and attracts campaign managers. This may not surprise many of the readers of this piece because a couple crowdfunding portals are becoming household names and others remain relatively obscure.


In his paper Supermarkets as a Natural Oligopoly, Paul Ellickson of the University of Rochester describes the “size of the store” as a factor that drives the success of few firms in the supermarket space: “The oligopolistic chains do not carve out separate turf, choosing instead to compete head to head with their rivals, with choice of store size behaving as a strategic complement. No other theory seems capable of explaining these facts.” Interestingly, he believes that this idea is not unique to supermarkets, but applies to many retail verticals saying, “the same features seem to characterize modern retailing in many arenas.” Could it be that a crowdfunding portal shares economic similarities with large brick and mortar retail spaces? If so, that might be a strategic lighthouse for portal owners.

Written by Davis Jones for CCA 

State Regulators Continue Their Misinformation Campaign on Crowdfunding


Equity and debt-based crowdfunding (aka crowdfund investing) isn't even live yet and State regulators, rather than engage in effective and productive dialogue with our industry on how to best protect investors, has chosen to continue its misinformation campaign by describing fraud that is NOT crowdfunding, as if it were crowdfunding.

Crowdfunding, as part of the JOBS Act - a bipartisan bill that was signed into law by President Obama on April 5, 2012, is in the 270-day rule-making period by the SEC. Sometime in 2013 when the SEC and FINRA finish their jobs, communities will be able to come together on SEC-registered platforms to invest in businesses that have been "crowd-checked" and "vetted" by investors using social media. Unless a fraud-free issuer (background checks are mandated) reaches 100% of her funding target no money is exchanged. However a recent Investment News story paints a shady picture.

In the article they point to two examples of issuers being cited by the Commonwealth Secretary of Massachusetts for fraud ... neither of which are actually crowdfunding. In one example, Prodigy Oil and Gas allegedly sold at least $464,000 in unregistered securities to one Massachusetts investor. In another, Synergy Oil LLC of Oklahoma and two of its executives allegedly sold $35,000 of unregistered securities to two investors. Upon further digging in the Boston Herald, we uncovered that an agent was used to cold-call investors in one case and in the other the issuer "was subject to three state securities regulatory actions and had two criminal charges." Not much more is mentioned (e.g.: did they use a broker, were lawyers or accountants involved, were securities and criminal background checks performed, were standards based due diligence documents included) so the fine details are difficult to know. However it is implied that they were crowdfunding.

Here's why neither of these cases are crowdfund investing fraud, and why it is concerning to see state regulators not being more accurate with their statements:

1) Crowdfunding isn't legal yet.  We are still waiting for the rules to be done.  This includes the SEC and FINRA.  So in reality what happened in the story is just fraud that was perpetrated under the current regulatory regime.
2) Crowdfunding, when it does go live (by law) must take place on SEC-registered websites only.  These websites aren't live yet and hence in the story isn't crowdfunding.
3) Crowdfunding requires a crowd and not just one or two people.  It also requires (per the legislation) that issuers direct investors to a funding portal's website (that is regulated by the SEC and FINRA) which per the story didn't seem to have happened. (They don't exist yet).  General solicitation will be limited to driving people to the portal via social media, or "many to many communication". Traditional fraud is one-to-one communication like the example above (calling you on the phone or that email you receive from a princess in a far away land). In crowdfund investing, entrepreneurs will direct people to a portal where many-to-many conversations are taking place about an offering. This is what creates transparency. In fact, it will be far more transparent than has ever existed in the current private capital markets. These conversations and interactions create 'crowd wisdom.'
4) Crowdfunding per the legislation requires an issuer to hit 100% of their funding target that is listed on a SEC-registered website.  If they don't hit it within the offering window, all the money is returned to investors. No reference to that in the story.
5) Platforms must perform fraud background checks (mandated by the legislation) to keep bad actors like the one in the example above out. The rules are still being determined and hence what happened isn't crowdfunding. (We are all in agreement that bad actor provisions are a good thing. Apparently the State Regulators are unaware of this proposed SEC rule on bad actors:
6) When this does go live the legislation mandates that there's a CPA review of the issuer's financials. That doesn't seem to be mentioned in the story. AND
7) This isn't crowdfunding because, when it does go live the legislation mandates that portals ...
(A) ensure that each investor—
(B) reviews investor-education information, in accordance with standards established by the Commission, by rule;
(C) positively affirms that the investor understands that the investor is risking the loss of the entire investment, and that the investor could bear such a loss; and
(D) answers questions demonstrating—
(i) an understanding of the level of risk generally applicable to investments in startups, emerging businesses, and small issuers;
(ii) an understanding of the risk of illiquidity; and
(iii) an understanding of such other matters as the Commission determines appropriate, by rule;

(E) take such measures to reduce the risk of fraud with respect to such transactions, as established by the Commission, by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;

When Crowdfunding goes live in 2013, rather than seeing articles like this, we'll more likely see stories about how hard it is to commit fraud under the crowdfunding regulatory scheme and yes, how we are helping state regulators to do a better job.