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Mitigating Fraud in Crowdfinance Webinar Slides


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Slides from the webinar dated 9/24/15. This webinar is available for replay at:

Published in: Economy & Finance
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Mitigating Fraud in Crowdfinance Webinar Slides

  1. 1. MITIGATING FRAUD IN CROWDFINANCE September 24, 2015 To listen to the replay of this webinar, please go to 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.
  2. 2. Crowdfinance will destroy investors and bring imminent economic doom Crowdfinance will bring peace, harmony & prosperity to the world! Unwarranted fear Doubt Curiosity Intrigue Irrational Exuberance Skepticism | | Twitter: @tothestoics THE CROWDFINANCE SENTIMENT SPECTRUM
  3. 3. | | Twitter: @tothestoics
  4. 4. 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 | | Twitter: @tothestoics
  5. 5. Special thanks to our sponsor
  6. 6. With Great Investing Power Comes Great Responsibility | | Twitter: @tothestoics
  8. 8. 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 Google Way Back Machine:  | | Twitter: @tothestoics
  9. 9. 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 | | Twitter: @tothestoics
  10. 10. 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.” | | Twitter: @tothestoics
  11. 11. RED FLAG #4: WHEN LAWSUITS BECOME AN IMPEDIMENT | | Twitter: @tothestoics
  12. 12. ADDITIONAL RED FLAGS CEO goes radio silent Implausible Explanations Faulty Math Constant pivots The never-ending financing round Capital Dependency | | Twitter: @tothestoics
  13. 13. 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 | | Twitter: @tothestoics
  14. 14. Presented by Paul Niederer, C.E.O. ASSOB International #paulniederer /paulniederer +61 411 968 362 MITIGATING FRAUD IN CROWDFINANCE
  15. 15. • 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
  17. 17. 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
  20. 20. Risk Matrix Top Right Bottom Left Easy Money Barriers
  21. 21. THERE ARE TOO MANY BARRIERS FOR A FRAUDSTER TO CHOOSE THE ASSOB PATH TO ENRICHMENT ... meaning it’s easy to get money elsewhere
  22. 22. 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
  23. 23. Story Clarity Supporters TeamGrounded Experience & Enthusiasm Believability Relevance CredibilityCapability Business Model Fundability Circles ©Paul Niederer 2015 1.
  24. 24. Designed by Joey Roth JOEYROTH.COM
  25. 25. 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
  26. 26. Main D/D points ASSOB Raise Admission Part One Listing Part Two Ongoing Quarterly Culture of Compliance and Governance
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. 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.
  31. 31. Presented by Paul Niederer #paulniederer /paulniederer +61 411 968 362 THANK YOU ... ANY QUESTIONS Request a copy of the presentation
  32. 32. Thanks for joining us today! To listen to the replay of this webinar, please go to