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Tuesday, May 15, 2012

Investor Alert: Approach Crowdfunding Opportunities with Caution

The Washington State Department of Financial Institutions (DFI) issued an advisory today warning investors to approach crowdfunding investment opportunities with great caution.

The full advisory is available on DFI’s website at

What is Crowdfunding?

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. Through the Jumpstart Our Business Startups (JOBS) Act, small businesses and entrepreneurs will be able to tap into the “crowd” in search of investments to finance their business ventures.

Congress enacted the JOBS Act last month and directed the Securities and Exchange Commission (SEC) to adopt rules to implement a new exemption to allow crowdfunding. Until the 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 a recent SEC release.

It pays to be skeptical

It pays to be skeptical of investment opportunities you learn about through the Internet. Crowdfunding investments cannot be offered legally until the SEC adopts rules to permit them. So beware of offerings that seek investments immediately. Investors should also be aware that crowdfunding offerings which solicit funds in exchange for products to be produced in the future may also be in violation of Washington’s securities laws.

When you see an offering on the Internet — whether it is on a crowdfunding portal, in an online newsletter, on a message board or in a chat room — do your research before investing.

Questions? Contact DFI

If you have any questions about crowdfunding offerings, contact the Washington State Securities Division at 360-902-8700 or