Crowdfunding,The JOBS Act And Scams In Your Inbox
John Wasik, Contributor, Forbes
I’m disappointed with the version of the JOBS Act the Senate just passed. Yes it will permit generous crowdfunding abilities on the Internet and so may open a new door for small businesses who want to get some quick capital. But it will also open the floodgates to massive fraud, facilitated by social media and the reach of global cyberspace.
Muammar al-Gaddafi at the 12th AU summit, Febr…
Muammar al-Gaddafi at the 12th AU summit, February 2, 2009, in Addis Abeba. (Photo credit: Wikipedia)I
The JOBS Act is no substitute for a real infrastructure jobs program that would repair some $2 trillion in collapsing bridges, roads, public-transit systems and other public works projects. Meanwhile, securities regulators fear that the Senate version of the House legislation, while slightly better, will still seed fraudulent schemes. Maybe loopholes will be closed in conference committee, although I’m not optimistic.
Will the final JOBS Act lure in millions of hopeful investors into the next generation of cyber-Ponzi scams? They never seem to go away, even though online investors, we may presume, tend to be more sophisticated in terms of education and experience.
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Still, scams constantly flow into my email inbox and more will inevitably follow. Sometimes they are obvious and often hilarious in their outright deception. Here’s one I received the other day, that was worth a chuckle or two (I’ve left the spelling/grammatical errors for full effect):
“I am James Francis ‘born in 1936 Florida US. I work as undercover business partner with Libyan Leader Muammar Gaddafi, before his dead on 2011 we have an Private account in Asia with deposit of $20,00,000 USD (Twenty Million US Dollars) mapped for investment without any beneficiary details or identification of the principle, after the process I secure this fund to make sure I complete my investment plan.
But right now my healthy condition and security in my country I cant transfer this fund to my personal account rather I want you to assist me to receive this fund’ because the bank have informed me to provide beneficiary immediately.
If you can assist me in this transaction’ by receiving this funds as beneficiary I will compensate you with 30% of the total amount and you will also get benefit from the investment. More details will be send to you when I receive you interest response. Thanks and best regards, James Francis.”
How kind of Mr. Francis to offer to pay me $6 million to facilitate the transfer of Gaddafi’s money! I suppose the dispatched dictator won’t be needing it now.
As you may have surmised, this is a classic Nigerian scam. What would happen — if I was suckered into this — is that Mr. “Francis” would ask for personal information like bank account numbers and request money from me, which he would quickly steal. He’d also probably purloin as much personal identity information as he could to transact even more larceny.
My point in mentioning this classic scheme isn’t so much that most people aren’t aware of the obvious nature of this would-be fraud, but that online operators will be much more sophisticated in their appeals. They may operate out of shell companies or even sound quite legitimate as they fleece investors.
Without disclosure, regulation and due diligence (on your part), my fear is that Nigerian scams will be small beer compared to online funding operations. Who will they be accountable to? Will they be independently audited? Where will they be based? Will your funds be held in custodial accounts by an independent third party? What happens if a venture goes bust? Will you lose every penny or will they have guaranty funds or other insurance or reserves backing them up?
Don’t get me wrong when it comes to entrepreneurship and venture capital. I’m all for it. I’m a sole proprietor myself and have run several other micro-companies. I want to see people strike out on their own and give it a shot. It’s the American way.
Yet you need to be twice as careful as an investor now. You’ll need to make extensive queries if you hope to see your money again. You’ll also have to be a bulldog with questions for the new generation of crowdfunding companies because the usual watchdogs will be muzzled. Good luck. And who said the Wild West was dead?