CFIRA Responds to NASAA’s Crowdfunding Concerns and Invites NASAA to Participate in Advocacy Efforts

May 23, 20012 (New York, NY) – On May 15, the North American Securities Administrators Association (NASAA) issued an advisory warning investors to approach crowdfunding investment opportunities with great caution. The NASAA’s advisory mentioned that Congress had enacted the JOBS Act in April to legalize crowdfunding for individuals, but only after the Securities and Exchange Commission (SEC) adopts rules to govern and regulate crowdfunding, due this coming January. As the leading advocacy group for the crowdfunding industry, Crowdfund Intermediary Regulatory Advocates (CFIRA) echoes NASAA’s concerns, and wants to assure potential crowdfunding investors and issuers that appropriate steps are being taken to protect their interests. This is CFIRA’s mission.

“NASAA is a trusted opinion leader in areas related to investing, and we echo their concern about investor protections,” said David Drake, Executive Committee Board Member of CFPA, “We also invite NASAA to join CFIRA and our partner organizations to assist the SEC in developing rules to prevent fraudulent practices. The first step for all involved is to establish a clear understanding of the new crowdfunding environment and to clear up any misconceptions.”

In its advisory, NASAA’s president stated, “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 disclosures to investors or regulators required of securities offerings. Investors will need to prepare themselves to be bombarded with all manner of offerings and sales pitches.”

The advisory related the JOBS Act to the 1996 passage of the National Securities Markets Improvement Act (NSMIA), which prohibited states from reviewing private offerings made under SEC Regulation D Rule 506 before they were sold to the public. The advisory went on to state, “Since NSMIA, the provisions of Rule 506 and other limited or private offering provisions have been used – and continue to be used – by unscrupulous promoters to fleece investors.”

With this response to that advisory, CFIRA wishes to clarify some of NASAA’s concerns.

  • Crowdfunding currently is taking place on a wide-scale basis, but simply does not provide investors with a return on their investment.
  • Current crowdfunding sites have reported that instances of fraud have been extremely limited, but, more importantly, have been consistently uncovered and removed within 24 hours, thanks to crowd intelligence.
  • Issuers will not be permitted to participate in crowdfunding or take advantage of the new crowdfunding exemption until January, 2013 at the earliest, when rules and regulations will have been established by the SEC.
  • As with any other industry, no regulation can completely prevent unscrupulous practitioners from taking advantage of investors or issuers. However, CFIRA and its partner organizations will continue to advocate safe crowdfunding practices, in conjunction with SEC regulations.
  • The crowdfunding rules and regulations will still be enforced by state authorities, similar to other investment practices.

NASAA has an opportunity now to work with the SEC and CFIRA to institute best practices, fraud tracking and monitoring.  As such, they are encouraged to join CFIRA in building a safe and secure crowdfunding environment.

Mr. Drake believes a safe, regulated environment can be created and this represents a positive step forward for the marketplace overall. “Criminal behavior exists in all investment environments. Here, NASSA has an opportunity to help shape the landscape before it goes live in January 2013. The professionals in our community need to contribute to ensure a safe, well-regulated environment for accredited and non-accredited investors alike.”

Those interested in learning more about CFIRA can visit CFIRA also welcomes comments at CFIRA’s LinkedIn Group page.

Additionally, each Monday, those interested can join the CFIRA leadership group for a Live Chat at 9 am PDT / 12pm EDT / 5pm BST on  Post any questions to the group or topics you would like the group to address here:  Follow this link to register or to read more about the Live Chat session:


Crowdfund Intermediary Regulatory Advocates, or CFIRA, was established following the signing of the Jumpstart Our Business Startups (JOBS) Act. CFIRA is an organization formed by the crowdfunding industry’s leading platforms and experts.  The group will work with the Securities & Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities to help establish industry standards and best practices. For more information, visit