Fraud in Crowdfunding and Antifraud Insurance

22 Pages Posted: 3 Jun 2013 Last revised: 2 Nov 2014

See all articles by Timothy Li

Timothy Li

George Washington University - Law School

Date Written: May 12, 2013

Abstract

The SEC should require crowdfunding issuers under the Jumpstart Our Business Startups Act to obtain private insurance against liability based on Section 4A(c) of the Securities Act, using a model of Directors & Officers’ liability insurance. Antifraud concerns could be a major reason for SEC holdup on crowdfunding rulemaking because the SEC must balance investor protection against the costs of disclosure. To address these concerns, a private insurance model could spread the costs of fraud in crowdfunding across the issuers by using the market to determine the “present value of shareholder litigation risk” for that issuer. The maximum recovery would be capped by the amount of the crowdfunding offering, and any recovery under the proposed insurance plan would require proof of a cause of action under Section 4A(c).

Keywords: antifraud insurance, crowdfunding insurance, Jobs Act, Section 4A(c) of the Securities Act, Directors & Officers' Liability Insurance, d&o insurance, Securities and Exchange Commission, SEC

Suggested Citation

Li, Timothy, Fraud in Crowdfunding and Antifraud Insurance (May 12, 2013). Available at SSRN: https://ssrn.com/abstract=2273263 or http://dx.doi.org/10.2139/ssrn.2273263

Timothy Li (Contact Author)

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

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