mitigating fraud in crowdfinance webinar slides
TRANSCRIPT
MITIGATING FRAUD IN CROWDFINANCE
September 24, 2015 To listen to the replay of this webinar, please go to
https://www.brighttalk.com/webcast/9407/167837
Join us for a live interactive webinar session where Paul Niederer, the CEO of the Australian Small Scale Offerings
Board (ASSOB), will discuss how the world’s oldest equities crowdfunding platform has been able to remain FRAUD
FREE after completing hundreds of raises in over 10 years in operation.
Webinar viewers will learn how to identify red flags before deploying capital on equity crowdfunding or marketplace
lending platforms as well as gain an understanding of “Investor Commanded Transparency”.
A MUST-VIEW webinar for novice investors, experienced venture investors (especially FinTech investors), financial
advisors, issuers, underwriters and regulators.
Paul Niederer
CEO of ASSOB
Dara Albright
Founder of Dara Albright Events
This webinar is sponsored by Crowdfund Insider, the leading news and information web site
covering the emerging global industry of disruptive finance including crowdfunding and peer-to-
peer / marketplace lending.
Crowdfinance will destroy
investors and bring
imminent economic doom
Crowdfinance will
bring peace, harmony
& prosperity
to the world!
Unwarranted
fearDoubt Curiosity Intrigue
Irrational
ExuberanceSkepticism
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
THE CROWDFINANCE SENTIMENT SPECTRUM
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
ASSOB BY THE NUMBERS
10 – Number of years in operation
$144 million plus – Number of dollars raised
300 – Number of listings to date
ZERO INSTANCES OF FRAUD
* Predominantly serves unaccredited investors
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
Special thanks to our sponsor
www.crowdfundinsider.com
With Great Investing Power
Comes Great Responsibility
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
YOU WOULDN’T SKYDIVE WITHOUT A PARACHUTE
WHY WOULD YOU INVEST WITHOUT PROPER DUE DILIGENCE?
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
RED FLAG #1: FREQUENT CHANGING OF THE GUARDS
If a company changes directors, advisors and employees faster than most of Hollywood switches spouses, it is usually a GIANT red flag.
Identifying frequent turnover:
Archive press releases
Way Back Machine: archive.org/web/
aiHITData.com
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
RED FLAG #2: STALE AND IRRELEVANT NEWS
Dated news
Fluff pieces
Website relaunches
Product upgrades
Strange bedfellows
Anything that doesn’t appear to be monetizable
“The only time you should ever look back is to see how far you’ve come.” – Author Unknown
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
RED FLAG #3: ALL STORY, NO SUBSTANCE
STORY
“We have no real competition.”
“Our platform will completely disrupt financial services.”
“We have aligned with some of the biggest companies on the planet.”
“Well-known VCs have expressed interest in participating in this soon-to-be-oversubscribed round.”
SUBSTANCE
“We’ve captured another 15% of the market share last year.”
“We’ve been able to convert 70% of trial users into paid subscribers.”
“Our recent partnerships have directly contributed 10% to last quarter’s revenues.”
“As you can see from the attached cap table, some very influential investors have invested in multiple rounds.”
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
RED FLAG #4: WHEN LAWSUITS BECOME AN IMPEDIMENT
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
ADDITIONAL RED FLAGS
CEO goes radio silent
Implausible Explanations
Faulty Math
Constant pivots
The never-ending financing round
Capital Dependency
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
INVESTOR COMMANDED TRANSPARENCY
Investor Commanded Transparency is a new theory premised on the notion that transparency be demanded by investors as opposed to being mandated by regulators
daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics
Presented by Paul Niederer, C.E.O.
ASSOB International
#paulniederer /[email protected] +61 411 968 362
MITIGATING FRAUD IN CROWDFINANCE
• CEO - Australian Small
Scale Offerings Board
(ASSOB)
• 10th year of operation
• Over $144 million raised
• Over 300 listings to date
• Predominantly unaccredited
investors
• More Title III than Title II
A PROPERLY MANAGED CROWDFINANCE PORTAL WILL LESSON THE CHANCE OF FRAUD
FRAUD DEFINITIONS
Usually include statements like ...
• untrue statement of a material fact
• representation that the person making it knows is not true
• doesn’t have the basis to make such a statement
• to omit to state a material fact that is necessary in order to
make the statements made, in the light of the circumstances
under which they were made, not misleading
STOPPING FRAUDSTERS IS NOT OUR MISSION. LESSENING THE RISK IS A COMPLEMENTARY OUTCOME OF A RESPONSIBLE PLATFORM
BUT WHAT IS A PLATFORM
Risk Matrix
Top Right
Bottom Left
Easy Money
Ba
rrie
rs
THERE ARE TOO MANY BARRIERS FOR A FRAUDSTER TO CHOOSE THE ASSOB PATH TO ENRICHMENT
... meaning it’s easy to get money elsewhere
Barriers
1. Intermediary (Declaration Issuer appears legitimate)
2. Intermediary precluded from pecuniary interest
3. Directors Liability
4. Upfront Fee
5. Founders and Entity Due Diligence
6. Marketing Docs Due Diligence
7. Early Bird / FFF marketing (Own Crowd feedback)
8. Live Marketing (Crowd feedback)
9. Funding Targets & Escrow
10. 10 day Cooling off period
11. 3 Directors and Auditor
12. Wisdom of the Crowd
StoryClarity
Supporters
TeamGrounded
Experience &
Enthusiasm
Believability
Relevance
CredibilityCapability
Business
Model
Fundability Circles ©Paul Niederer 2015
1.
Learnings
1. Due Diligence needs to nail mis-representation and
over selling
2. Any transaction with related parties and self dealing
need to be banged on the head
3. Full transparency on transactions and expectations
4. Standardised and vetted templates and processes
5. Ongoing reporting responsibilities and communications
6. Report wrong doers to authorities and advise
shareholders to do the same
Main D/D points ASSOB
Raise
Admission
Part One
Listing
Part Two
Ongoing
Quarterly
Culture of Compliance and Governance
Misrepresentation
Reckless Disregard
Honest Mistake
Honest Omission
Discovered during ASSOB D/D and ongoing checking
• Failure to transfer intellectual property into capital
raising entity
• TM expired, patents lapsed
• Failure to properly disclose contracts not at arms-length
• Company or business does not exist. Founder or
associate names are fake.
• Company or business claims to be associated with
reputable businesses
Misrepresentation
Reckless Disregard
Honest Mistake
Honest Omission
Discovered during ASSOB D/D and ongoing checking
• Domain names are usually not in the correct names of
the capital raising company.
• Founders Issuing equity during a capital raising in
addition to those in the raise offer document.
• Failure to observe basic corporate governance
obligations – lodging share notifications, holding
Stockholder Meetings, preparing audited financials
• Failure to send stock certificates or holding statements
to investors
Misrepresentation
Reckless Disregard
Honest Mistake
Honest Omission
Discovered during ASSOB D/D and ongoing checking
• Manipulation of share allocation through undisclosed
debt for equity transactions, equity for services.
• Raised proceeds are being repaid to founders
• Material changes / events occurring and not keeping
investors updated, e.g. intellectual property expired,
material contracts fallen through.
• Undisclosed debt for equity or convertible notes
transactions that exist prior to the raise
Misrepresentation
Reckless Disregard
Honest Mistake
Honest Omission
Discovered during ASSOB D/D and ongoing checking
• The money is not being used as detailed in the Use of
Proceeds in the investment document
• Misleading or deceptive claims made by the company
or business about their product / services.
• Unsubstantiated “green” claims – this is a big one for
those companies claiming that it reduces carbon
footprints and uses less energy.
Presented by Paul Niederer
#paulniederer /[email protected] +61 411 968 362
THANK YOU ... ANY QUESTIONS
Request a copy of the presentation
Thanks for joining us today!
To listen to the replay of this webinar, please go to
https://www.brighttalk.com/webcast/9407/167837