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The Securities and Exchange Commission (SEC) has asked Nigerians to be wary of investing their funds in unregistered crowdfunding platforms warning that they risk losing such investments.
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The SEC in a recent circular this month warned that unregistered investment crowdfunding platforms are illegal and provide no lawful cover for investors.
Unregistered crowdfunding platforms risk prosecution
Part of the circular states: “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
According to Investopedia, crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding allows ventures to raise funds to finance a project or business from the public through an online platform. A crowdfunding portal is a website, portal, intermediary portal, application, or other similar module that facilitates interaction between fundraisers and the investing public
Crowdfunding has grown to become a popular method of raising funds for numerous small enterprises and creative projects worldwide. Statista is forecasting the global crowdfunding segment to reach US$1.02bn in 2022.
SEC’s rules for crowdfunding platforms
The SEC first published its crowdfunding rules in January 2021 and requested crowdfunding platforms to register with the commission in order to sanitise the sub-sector and protect both investors and genuine operators from fraudsters.
By the rules of the SEC, Micro, Small and Medium Enterprises (MSMEs) incorporated in Nigeria with a minimum of two years of operating track record are eligible to raise funds through a crowdfunding portal registered by SEC, with total fees payable to parties to a crowdfunding issue shall not exceed two per cent of the total funds raised.
Under this regulation, the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.
Part of rules state: “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,” part of the guidelines said.
