JOBS Act 2012: Will the Benefits to Indie Filmmakers (Easier to Raise Funding) Outweigh the Damage When Con Men Exploit the New Law for Fraud?
Under a new law signed by President Obama, a filmmaker (or any other start-up) can publicly announce that they are raising capital (on Facebook or even in the local paper), and then raise up to $1M each year via crowd funding. Individual investors can invest up to 10 percent of their income. And there is very little paperwork required.
This new federal law includes some investor protections (e.g., crowd funders must identify themselves and work through an established intermediary like Kickstarter) and reasonable funding caps.
But the potential for fraud will be huge.
According to Jack E. Herstein, President of the North American Securities Administrators Association: “The JOBS bill the President signed today is based on faulty premises and will seriously hurt all investors by either eliminating or reducing transparency and investor protections. It will make securities law enforcement much more difficult."
Experience tells us that hucksters and scam artists love to exploit the tinsel of the movie business to dupe credulous investors.
The JOBS Act - and the broader ability to raise money online with minimal regulatory oversight that it fosters - will almost certainly expose naive investors to a new wave of fraud from greedy con men.
Will it really help indie filmmakers when criminals realize the opportunity to raise funding for non-existent projects and start using Kickstarter and indiegogo (posing as film producers) to scam naive investors?
Already one of the most successful Kickstarter campaigns - a project promising video-capable glasses - has collapsed - leaving hundreds of investors with nothing for their money and a bad experience with online investing.
Under the new law, how will investors know if the film they are backing is from a real indie filmmaker or a con man?
The new law will change the way crowd funding works. And it may - unintentionally - actually make it harder for real filmmakers to raise money via crowd funding.
Yes - there will be more opportunities for legitimate filmmakers to raise funds online - but I worry that the con men will soon swoop in and actually ruin it for the legitimate filmmaker.
While this new version of the law is a BIG improvement over the initial crowd funding legislation that I questioned back in November 2011, it still is bound to create many problems.
Kickstarter and indiegogo have a head start, but I anticipate that new intermediaries will soon emerge - offering to handle the paperwork and to do background checks on the issuers (something that neither Kickstarter nor indiegogo currently offer, but something that the new law will require).
Independent filmmakers and transmedia storytellers need to educate themselves about this new law - how it might be used to raise money - and how it might (paradoxically) become harder to raise money through crowd funding after our reputations are besmirched by the grifters and wannabes who will soon take be taking advantage of the gaps in the JOBS Act's regulations.
Here is what Robert Kuttner, co-editor of The American Prospect, had to say about the JOBS Act : "The one thing we have going for us is, there are disclosure laws so that if investors have the wit to read the disclosures, they can protect themselves, and that’s what this retched piece of legislation would gut. Shame on anybody who votes for this."
And here is another - more optimistic - view of how the JOBS Act will work:
New Crowdfunding Compromise is Best of Both Worlds