SEC warns against unregistered crowdfunding platforms

The Securities and Exchange Commission (SEC) has warned investors on the illegality of unregistered investment crowdfunding platforms.

The Commission stated this is a circular dated August 3, 2022, where it acknowledged the presence of unregistered crowdfunding platforms while also warning investors against dealing with them.

Crowdfunding is the process of raising funds to finance a project or business from the public through an online platform. A crowdfunding portal is a website, intermediary portal, application, or other similar module that facilitates interaction between fundraisers and the investing public.

The SEC stated that it has observed with concern the fraudulent activities of some unregistered investment crowdfunding platforms, and hereby strongly advises the investing public against making investment(s) with or through any crowdfunding platform not registered with the Commission.

The Commission stated that in recognition of the potentials 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: sec.gov.ng”

Recall that the commission which had recently released rules on Crowdfunding, said, “A proposed rule has been developed to provide a regulatory framework permitting private companies with the required structure and mechanism in place to raise capital from the public through crowdfunding.”

It noted that Micro, Small and Medium Enterprises (MSMEs) incorporated as a company in Nigeria with a minimum of two years of operating track record should be eligible to raise funds through a crowdfunding portal registered by the commission.

According to the commission, total fees payable to parties to a crowdfunding issue shall not exceed 2 per cent of the total funds raised.

The commission noted that the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.