Billion dollar scams in crowdfunding websites

[Ronald Rohde]

For anyone considering crowdfunding websites, huge SEC investigation into billions of dollars of investments that say the collateral for those loans may not exist at all. Personally, I'd never sign up for the micro-share model, just let me own and control 20-100% directly.

WSJ Article (free hosting, no paywall)

[Ian Ippolito]

Originally posted by @Ronald Rohde:

For anyone considering crowdfunding websites, huge SEC investigation into billions of dollars of investments that say the collateral for those loans may not exist at all. Personally, I'd never sign up for the micro-share model, just let me own and control 20-100% directly.

WSJ Article (free hosting, no paywall)

 While I agree it's something to watch out for, there have also been billions of dollars of fraud in more conventional syndications. So that isn't the way to avoid those kind of losses. (And there has been trillions of dollars of fraud in public market so that isn't any protection either).

The key is performing due diligence. In the case of Yield Street there were many red flags way before the SEC investigation ever started. They would not disclose the sponsor to the investor. They would not give out key details about the investment. They cultivated a videogame like atmosphere where investors had only a few seconds to make an investment decision before it would be fully filled. All of these would be immediate deal breakers (at least to any investor who requires doing due diligence before investing).

I'm not saying that due diligence will avoid all fraud because ultimately investor can never know that with 100% certainty. But it definitely helps to weed out some of them.