New Year brings new risks in online fundraising

Oregon investors have already lost millions of dollars in 2013 in classic high-risk investments involving everything from a gold mine to oil and gas schemes to a struggling Russian ethanol plant.

While the details vary, they share a common element: They involved unlicensed promoters selling unregistered investments.

In the gold-mining scheme, the state had previously revoked the securities license of one of the promoters.

In the case involving the ethanol plant, the promoter had been convicted of fraud. One call to the Oregon Division of Finance and Corporate Securities would have alerted investors to the questionable background of key players.

To see a list of top 2013 investment risks compiled by state securities regulators nationally, visit To see how a Ponzi scheme works, visit

While 2013 saw more traditional schemes and risky investments, new hazards loom in 2014 for online investors who aren’t investment savvy. As part of the JOBS Act, the Securities and Exchange Commission is writing rules to make it easier for small companies to raise capital online versus going through the stock market.

The transactions can be advertised broadly; however, they are not subject to traditional review and regulation as an investment.

“As we enter into a new era of sales of investments that have not been reviewed by and registered with the State of Oregon, investors are going to have to request financial information about the company they are considering and to demand information about possible risks,” said David Tatman, the administrator of the division, part of the Oregon Department of Consumer and Business Services.

Once the federal rules are written, websites called funding portals will connect investors who meet certain standards with businesses that can raise up to $1 million every 12 months.

There are caps on how much investors can invest, based on their net worth. Still, Oregon financial regulators say investors should be careful not to commit money they cannot afford to lose.

“It is not enough to listen to the glowing projections and focus only on the positive forecasts that sellers want to focus on,” Tatman said. “Investors need to become their own advocates and make sure they have a complete picture of a company, good and bad, before investing.”

Since investors will be buying a piece of startup companies that have little financial history, they need to make sure they know about officers and key personnel in the company.

“In those situations, investors should never invest more than they can afford to lose,” Tatman added.

Contract Publishing

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