Specifically, startups will only be allowed to raise $1 million in any 12-month period through crowdfunding, and the companies, in an effort at transparency, must agree to provide certain information including a financial statement reviewed by an independent accountant. Investors will be limited to how much they can invest based on their income. And individual investors will be limited to purchasing a maximum of $100,000 in securities per year through crowdfunding deals, according to the SEC. The crowdfunding sites will have to be registered with both the SEC and securities industry regulator FINRA. But even with the SEC and FINRA keeping a close eye on these sites, critics of the new rules are warning unsophisticated investors to be extremely careful before logging in and pulling out their credit cards. 15 on Scale of 1 to 10 The opportunities for con men masquerading as entrepreneurs and bankers to defraud naive investors are practically limitless, said Andrew Stoltmann, a Chicago-based securities lawyer who often represents investors in cases of fraud and corporate malfeasance. The SEC has put a massive kick me sign on the back of the very category of investor most susceptible to (investment scams), said Stoltmann. There are promoters out there who are salivating at the opportunity to start pitching these deals to mom and pop investors. Stoltmann said in approving the new rules, the SEC has placed the interests of raising capital above the priorities protecting small investors. Stoltmann, who has long warned investors about the dangers of buying IPO stocks too early and with not enough information, said on a scale of 1 to 10 buying an IPO stock rates about 7. Meanwhile, buying shares in a company through a crowdfunding site rates a 15 on the danger meter.
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