October 2013

Crowdfunding may not be all it's cracked up to be

Crowdfunding is an innovative idea. But like anything that promises to be a game-changer, it has both benefits and drawbacks that need to be considered.

On the plus side, many people would like to be able to assist a friend or neighbour launch a new business, product, or idea, help someone in need, or pre-purchase the latest innovative product, such as the Pebble smartwatch - and crowdfunding can do just that. These are all examples of good crowdfunding.

However, the deregulation of securities laws to allow anyone to make investments via equity crowdfunding is like the Titanic heading into iceberg alley. Equity crowdfunding abandons fundamental principles that have made Canadian markets among the most successful at raising risk capital, including full disclosure, due diligence, insider regulation and the role of a professional financial advisor. These are the negatives of crowdfunding.

Crowdfunding combines the ease of technology with the promise of potential lottery-sized winnings. However, in a lottery, there is a regulator that ensures the integrity of the system, including money coming into the lottery and money paid to vendors and to winning players. Deregulated securities rules will not prevent crowdfunding from being a rigged game.

This story first appeared as an Inside Track op-ed in the online version of Investment Executive.

To read the rest of the article on our website, click here. 

Addressing Problems with Market Structure

FAIR Canada made a submission on Aequitas Innovations Inc.'s proposal to establish a new exchange, in response to a request for comment from the Ontario Securities Commission's ("OSC").

We note that the concepts and issues covered by the Notice are too complex for investors to grasp and respond to, except sophisticated institutional investors. The complexity of the issues should not lead to a policy debate that is dominated by the views of marketplaces, large securities dealers, and high frequency traders ("HFTs"). The views and concerns of investors should be of significant interest to regulators.

Click here to read more about our submission.

FAIR Canada Comments on CSA's Modernization of Investment Fund Product Regulation

FAIR Canada supports the CSA's Investment Fund Modernization Project and we support establishing core operational requirements for non-redeemable investment funds (otherwise known as closed-end funds) analogous to those applicable to mutual funds. 

Click here to read more about our submission to the CSA.

FAIR Canada's executive director, Ermanno Pascutto, calls for increased investor protection from inappropriate use of leverage in a recent article entitled 'To leverage, or not?' in Investment Executive. He cites "a "systemic incentive"... that encourages advisors to recommend leverage, even in situations in which it is not suitable, because a larger asset base generates higher commission income and trailer fees for the advisor."

Read the full story...

Crowdfunding - Good-Intentioned,  Ill-Advised

In an insightful article, Tim Dailey, a U.S. investment banker, points out many of the flaws of equity crowdfunding. He predicts it will be "a disaster for companies and investors alike". The article points out that retail investors do not have the knowledge, expertise or management access that venture capital funds do, and asks who will set the valuation for equity crowdfunding offerings. 

Do you know anyone who would be interested in receiving

FAIR Canada's Monthly Newsletter?