This is an opinion piece based on my personal research into Wefunder.
Let’s talk about a major shake-up in the crowdfunding world back in 2022. One which you may have heard little about as these things tend to be brushed under the carpet in the hope that nobody notices.
Wefunder, one of the biggest names in investment crowdfunding, got slapped with a $1.4 million fine by FINRA. This wasn’t just a slap on the wrist — it was a full-on wake-up call for the industry.
So, what happened?
Between 2016 and 2021, Wefunder was a bit too ambitious. They raised about $20 million more than they were allowed under the crowdfunding limits. How did they manage that? They shuffled the extra cash from their crowdfunding campaigns into other offerings that fell under different regulatory exemptions (FINRA).
But that’s not all. FINRA found that Wefunder wasn’t following the rules when it came to handling investor funds. They were slow to direct funds to issuers or return them to investors. Plus, they sent out mass emails to potential investors, pushing investments listed on their portal. That’s a big no-no in this space.
The communications on Wefunder’s site also didn’t meet the mark. There were misleading statements that didn’t paint the full picture of the investments. And internally, their supervisory systems were lacking. An internal email from 2021 even had one officer calling out another for not delegating tasks properly — a clear sign that things were off-track.
As part of their settlement, Wefunder agreed to bring in an independent consultant. This consultant will help them clean up their act, reviewing and improving their systems and procedures.
Now, Wefunder wasn’t the only one in hot water. StartEngine Capital, another major player, got hit with a $350,000 fine too. Their issues ranged from misleading communications about their offerings to not properly supervising the content on their site. One standout example was a home robot that was advertised as way more advanced than it actually was. StartEngine knew — or should have known — that these claims were exaggerated but didn’t step in to correct them.
Jessica Hopper, the EVP and Head of FINRA’s Department of Enforcement, made it clear that these actions are all about protecting investors. Crowdfunding portals have a critical gatekeeping role, and FINRA is watching them closely to ensure they’re playing by the rules.
The takeaway here? Crowdfunding platforms need to stay transparent and follow the rules to maintain investor trust. These fines are a stark reminder that cutting corners is not an option if you want to stay in the game.
As the industry evolves, compliance and transparency are going to be more important than ever.
