Again, SEC Warns Against Unregistered Investments Crowdfunding Platforms

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The Securities and Exchange Commission has again warned investors on the activities of unregistered investments crowdfunding platforms.

Crowdfunding is the process of raising funds to finance a project or business from the public through an online platform.

Crowdfunding portal is a website, portal, intermediary portal, application, or other similar module that facilitates interaction between fundraisers and the investing public.

It would be recalled that in March, the Securities and Exchange Commission (SEC) exercising its powers under Section 13 (w) Investments and Securities Act 2007, sealed the premises of Oxford International Group/Oxford Commercial Services, Farmforte Agro Allied Solutions Limited/Agro Partnerships as well as Vektr Capital Investment/Vektr Enterprise for illegally engaging in capital market activities.

The offices of the companies in Lagos, Port Harcourt and Abuja were shut down for carrying out investment operations that fall within ambit of fund management without registration with the apex regulator contrary to the provisions of the Investments and Securities Act 2007.

The companies do not have registration of the SEC to conduct fund management activities but have been found to be promising exorbitant rates of returns to lure investors.

Earlier this week, another financial sector regulator, the Nigeria Deposit Insurance Corporation (NDIC) warned that those staking money on Fund Managers will blame themselves later.

In a disclosure that distances the Corporation from Fund Managers warning that its deposit insurance do not cover such ventures, it noted the increase in investment channels with innovative products, and urged the members of the public to stop to patronise the illegal fund managers who have been using different platforms soliciting public to invest their funds with them, promising excessive returns on such investments

SEC, in a new August 3 circular, states that it has observed with concern the fraudulent activities of some unregistered investment crowdfunding platforms and hereby strongly advise 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, 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, e-mail: [email protected], Phone no: 09-4621168”.

The commission had in the 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 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 two 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.

“The maximum amount which may be raised by a small enterprise shall not exceed N70 million; and the maximum amount which may be raised by a micro enterprise shall not exceed N50 million.

The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time,” it said.

The commission explained that retail investors might not invest more than 10 per cent of their annual income in a calendar year.

According to the rule, crowdfunding portal that is located outside Nigeria will be considered as actively targeting Nigerian investors, if the operator or the operator’s representative, promotes directly or indirectly the platform in Nigeria.

It stated that a crowdfunding portal might be registered and operated only by an operator registered with SEC as a Crowdfunding Intermediary.

The rule added that only entities registered with the Commission as an Exchange, dealer, broker, broker/dealer or alternative trading facility as prescribed under the Act and the SEC Rules and Regulations might be registered as a Crowdfunding Intermediary.

It added that crowdfunding portal or crowdfunding intermediary that failed to comply with the rules shall be liable to a fine of not less than N1 million and the sum of N10,000 for every day the violation continues.

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