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In Reply to: RE: SEC rules ... Are not a law of physics... posted by John Marks on March 30, 2014 at 18:32:29
You are operating under "caveat emptor" when you buy something form someone who promises to deliver it.
When you become a shareholder? Different rules apply, and you can't just go an invest in a startup (yet) without proving a certain amount of net worth - i.e. you can "afford" to lose your stake.
It does look like the law, created in the 1930's, might be revised or eliminated, but it is in force right now, which is why you NEVER get an ownership stake in any of these companies.
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I can't flap my wings and fly.
But if I can tolerate the (small) risk of ignoring or violating state or federal Blue Sky laws, I can sign up investors and not care a bit whether they are factory workers handing over their lives' savings.
A stupid undergraduate I met at a party not long after I graduated from law school intently asked me if she got pulled over for speeding, could the cop look in her handbag (she admitted that most likely it would contain drugs)?
I answered, "Of course."
She spluttered, "But what's his probable cause?"
In my best Auric Goldfinger, "No, Mr. Bond--I expect you to die!" voice, I replied, "Sweetie, he can tell you to make like a Hoover on his wing-wang. That doesn't mean he won't eventually get into trouble if you complain. But he's the guy with the gun, and if he says, hand over the purse, you hand it over. Also, if the purse is within 'grabbing distance,' he can make sure it does not contain a gun."
The fact that a law exists is not a guarantee it will never be violated. Quite the reverse.
Let's imagine that that Tom & Jerry Audio Company is in real financial trouble; their secured lender is about to put them into state court receivership. So Tom and Jerry advertise a vaporware USB DAC at $250, and collect $50,000. They split half of it to bring their salaries up to date, and then give the rest to the secured lender. Months later, things have not turned around, and they put the business in Federal Bankruptcy Liquidation. Their USB DAC customers are last in line.
A few of those get publicized, and the bloom will be off the crowdfunding rose.
JM
I've participated in a Kick-Start idea that had no real ROI, and that's fine with me. A small-town movie theater had to convert to digital or go under. The place had been around for 90 years, serving a remote community and I gladly kicked in $100 because it felt good. I DID get a cool move poster out of the deal, but that's not why I did it.
They exceeded their goal by 10% and someone found two used digital systems so they can convert BOTH screens for pennies more than one. Everybody wins.
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