ALEXANDRIA, Va., Feb. 25, 2014 /PRNewswire-USNewswire/ -- Since September 2013, Securities and Exchange Commission (SEC) rules have prohibited certain types of securities offerings from being made if anyone with a history of financial fraud is involved. The private placement market, which accounts for nearly $1 trillion of investments every year, is affected by this prohibition. The prohibition will also apply to "crowdfunding" — that is, sales of securities by start-up companies or small businesses to large numbers of investors over the internet. CrowdCheck's new Bad Actor Report is an invaluable tool that will help companies and financial intermediaries making these offerings avoid "bad actors" and protect their offerings.
If an officer, director or major shareholder of a company making an offering, or anyone promoting the deal, has committed any of eight enumerated "bad acts," the company may be liable for violations of the federal and state securities laws.
There is no single database that a company can check for bad acts. The lack of a comprehensive, price-appropriate solution to the bad actor issue has led some issuers and their advisers to use questionnaires, asking officers and directors, in effect, to state whether they have committed any financial frauds. Brian Knight, CrowdCheck's VP for Platform Services, thinks this approach is inadequate. "After all, liars lie," he points out. "When you are screening for frauds, asking 'Are you a fraud?' isn't going to work."
CrowdCheck's Bad Actor Report is the solution: a robust tool to screen out bad actors at a price point suitable for smaller offerings. CrowdCheck has designed a proprietary mix of databases and other sources of information that cover all eight enumerated categories of bad acts. Trained personnel then evaluate the results of the search and report back to the issuer or broker with a clear, actionable answer that meets the SEC's requirement that "reasonable care" be taken to avoid bad actors.
The Bad Actor Report is useful for companies making securities offerings online or offline, and the law firms and broker-dealers or other intermediaries who assist them. Companies that intend to make offerings of securities in the future should also run the names of potential hires through the Bad Actor Report to avoid problems later.
The Miami-based platform EarlyShares was one of the first intermediaries to use CrowdCheck's services. In addition to obtaining CrowdCheck's complete due diligence reports for investors when EarlyShares is acting as an intermediary for a securities offering, EarlyShares also obtains Bad Actor Reports for all companies posting non-intermediated offerings with EarlyShares. Heather Lopes, Co-Founder and Chief Strategy Officer of EarlyShares says "We have a reputation to protect, we don't want to host any offerings by Bad Actors. CrowdCheck has been a wonderful partner in assisting us with that effort and protecting our platform. We also encourage our issuers to consider higher level reports that CrowdCheck can provide to further reassure investors."
CrowdCheck provides due diligence, disclosure and compliance services for early-stage capital-raising online. CrowdCheck's standardized, easy to read reports on companies seeking investments provide tools that investors can use to make informed investment decisions and avoid fraud. CrowdCheck can also provide customized due diligence reports for more specialized platforms. CrowdCheck's Bad Actor Report can be used by issuers, intermediaries and law firms in online and offline offerings to comply with the SEC's new Bad Actor rules. Issuers and intermediaries in crowdfunding transactions can look to CrowdCheck for assurance that an offering complies with the new rules.