Home BUSINESS & ECONOMY Capital Market SEC Warns Investors Against Illegal Crowdfunding Platforms

SEC Warns Investors Against Illegal Crowdfunding Platforms

SEC To Tackle Identification Issues Through Technology

The Securities and Exchange Commission (SEC) has issued a fresh warning to investors who use unregistered investment crowdfunding sites.

Crowdfunding is the technique of soliciting cash from the general public to finance a project or business using an internet platform.
A crowdfunding portal is a website, portal, intermediary portal, application, or other comparable module that allows fundraisers and the investing public to communicate.

In a circular issued on August 3,2022, the SEC stated that it has been concerned about the fraudulent activities of some unregistered investment crowdfunding platforms and advised the investing public to avoid making investments with or through any crowdfunding platform that has not been registered with the Commission.

The Commission stated that in recognition of the potential and importance of crowdfunding platforms and the need to protect investors through effective regulation, it had in January 2021, published its crowdfunding rules and requested well-intending crowdfunding platforms to register with the Commission and comply with the Rules by June 30, 2021.

According to the circular, “The Commission by this circular hereby notifies the general public and operators of unregistered crowdfunding platforms, that operating any crowdfunding platform that is not registered by the Commission is illegal and may lead to prosecution of such operators and loss of investment by their clients.

“Members of the public are further advised to confirm the registration status of any entity soliciting their participation in any investment scheme by contacting the Commission through its website.”

A draft regulation has been created to offer a regulatory framework for private enterprises with the requisite structure and process in place to raise funds from the public through crowdfunding,” the commission stated recently.

It stated that Micro, Small, and Medium Enterprises (MSMEs) formed as corporations in Nigeria with at least two years of operating track record should be able to seek money through a crowdfunding platform recognized by the commission. According to the commission, total fees given to parties to a crowdfunding issue must not exceed 2% of the total amount received. The SEC stated that the maximum amount that a medium-sized firm may raise must not exceed N100 million.

“The maximum amount which may be raised by a small enterprise shall not exceed N70 million; and the maximum amount which may be raised by a micro enterprise shall not exceed N50 million.

The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time,” it said.

According to the commission, ordinary investors should not invest more than 10% of their yearly income in a calendar year. According to the guideline, a crowdfunding portal based outside of Nigeria is regarded to be actively seeking Nigerian investors if the operator or the operator’s representative advertises the platform in Nigeria, either directly or indirectly.

It said that only an operator registered with the SEC as a Crowdfunding Intermediary could register and administer a crowdfunding site. Only companies registered with the Commission as an Exchange, dealer, broker, broker/dealer, or alternative trading facility as defined by the Act and the SEC Rules and Regulations may be registered as a Crowdfunding Intermediary, according to the regulation

It added that a crowdfunding portal or crowdfunding intermediary that fails to comply with the rules shall be liable to a fine of not less than N1 million and the sum of N10,000 for every day the violation continues.

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