Crowdinvesting: Equity-Based Eureeca Attracts SEC Scrutiny
Based in Dubai, Eureeca Capital burst onto the stage and brought the crowd with them. Operating globally, they became the first viable, equity-based, crowdfunding platform for small and medium enterprises (SMEs). Eureeca offered a service that connected SMEs to funding that previously required the investment of large capital venture firms. Additionally, Eureeca allowed any investor the sort of access that usually requires special exemption by the U.S. Securities and Exchange Commission.
In steps the SEC
U.S. securities laws require that companies that offer their own securities to U.S. investors must register with the SEC or, qualify for one of several exemptions. One such exemption allows non-registered companies to sell their securities to “accredited investors.” These restrictions often include safeguards that verify an investor’s status before the trade goes through. Eureeca, however, did not employee these safeguards. Instead, they included a brief disclaimer in the Terms and Conditions of their user agreement citing U.S. securities law.
In the end, only a handful of individuals actually invested in securities through Eureeca. However, the SEC held that Eureeca violated U.S. security laws and subsequently fined the company $25,000. The fine, though hefty, was not large enough to permanently disrupt Eureeca’s services.
Jumpstart Our Business Startups Act
Signed into law on April 5th, 2012, the U.S. JOBS Act requires the SEC to adopt new regulations, at a future time, that will allow equity-based crowdfunding. Though still restricted in the U.S., crowdinvesting continues to grow worldwide by effectively connecting investors to SMEs. For the time being, U.S. investors are left out of the crowd.