RICHMOND — The State Corporation Commission (SCC) urges Virginia investors to carefully review crowdfunding investment opportunities, as these no longer fall under pre-sale disclosure review by Virginia state securities regulators.

Crowdfunding is an online money-raising strategy that began as a way for the public to donate small amounts of money, often through social networking websites, to help artists, musicians, filmmakers and other creative people finance their projects. Recently enacted federal legislation expands this concept, allowing small businesses and entrepreneurs to tap into the “crowd” in search of investments to finance their business ventures.

“Although crowdfunding is designed to make it easier for small businesses and startups to raise capital, it also increases the potential for investor harm,” said Ron Thomas, director of the SCC’s Division of Securities and Retail Franchising. He cautions investors regarding the potential pitfalls of investing through crowdfunding. “Make sure you fully understand any offering and accept the risk before you invest,” he said.

Congress enacted the Jumpstart Our Business Startups (JOBS) Act in April and directed the Securities and Exchange Commission (SEC) to adopt rules within 270 days to implement a new exemption to allow crowdfunding. Until those rules are adopted, “any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws,” according to the SEC website.

Thomas urges investors to beware of promoters who jump the gun by offering investments through crowdfunding before the SEC rules are adopted. He also warns that investments through crowdfunding will not carry the same consumer protections as other investment offerings. “Once exempt, crowdfunding investments will not be reviewed by regulators before they are offered to the public, nor will they be required to provide the same level of pre-sale disclosures to investors or regulators. This places the burden on the prospective investor to fully understand the potential risks associated with such opportunities,” he said.

Investors with questions about crowdfunding offerings should contact the Division of Securities and Retail Franchising before investing at (804) 371-9051 (in Richmond) or 1-800-552-7945 (toll-free). For more information about the crowdfunding provisions of the federal law, visit the North American Securities Administrators Association (NASAA) website at www.nasaa.org or the SEC website at www.sec.gov .

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