Crowdfunding scam artists beware: Massachusetts is putting I-CROWD on the case

William F. Galvin. File photo. (Pat Greenhouse/Globe Staff)
William F. Galvin. File photo. (Pat Greenhouse/Globe Staff)

The Massachusetts Securities Division has formed a new unit called “I-CROWD” to monitor crowdfunding websites, Massachusetts Secretary of State William F. Galvin said Wednesday.

Galvin’s office supervises the Securities Division. I-CROWD will be made up information-technology staff members and Securities Division attorneys.

The federal JOBS Act of 2012 lifted the ban on businesses raising money by advertising private deals. As a result, hedge funds, private equity funds, angel investments, and other small businesses can advertise on the Internet, social media sites, television, and any other outlet. The JOBS Act also allows existing crowdfunding sites to raise equity by selling securities to “mom and pop” investors without having to fulfill prior federal and state registration or exemption requirements.

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One side-effect of the law is to open up some new opportunities for “shady operators” and scam artists to exploit unsophisticated investors; the objective of I-CROWD is to crack down on such abuses, Galvin suggested.

“I do not begin to think that one state can monitor and police the Internet,” Galvin said in a statement, “but I am going to take every proactive step I can to protect investors in the Commonwealth from those who would abuse the provisions of the JOBS Act.”

Galving added, “The JOBS Act may accomplish its intended purpose of allowing small businesses to raise capital and create jobs – and I hope it does—but it also sets in motion a much easier path for shady operators and outright crooks.”