Every day, someone contacts our office to ask about Crowd Funding and their Self Directed IRA Account.
Crowd Funding is a collective effort of individuals who network and pool their money. This can replace the need for traditional financing for entrepreneurs as well as non-profit organizations bringing their ideas to life.
This “public” type of solicitation, which usually occurs on the Internet, is raising billions of dollars and has received the attention of the SEC among other policymakers.
President Obama deserves some of the credit for Crowd Funding’s rise. He signed the JOBS Act into law, thereby giving entrepreneurs the ability to raise seed capital without jumping through the traditional hoops of bank financing.
There are websites devoted to finding communities of small investors to fund businesses, disaster relief, and other efforts initiated by people or organizations seeking support and dollars.
Self-Directed IRAs, where clients choose the alternative investments they wish to acquire in their IRA, could be ideal candidates for Crowd Funding. They certainly are from the organizer’s perspective. The idea of small contributions from many appeals to people who seek to “spread their risk.” But is this a good investment for your retirement dollars?
With a truly self-directed IRA the client chooses his investments. We at IRA Innovations never give investment advice, or assist our clients with an investment decision. We suggest, as we do with any other investment, that the client perform due diligence. In this case, that would include investigating the organization or party offering the opportunity.
The Securities and Exchange Commission was to have laid out rules pertaining to Crowd Funding this past January. As of this writing, no rules have been established.
I am sure one consideration occurring is a review by the SEC on investor solicitation rules. Currently, a person needs a securities license if they approach more than 35 people for participation in an investment. Thanks to the miracle of the Internet, thousands if not millions can search and seek opportunities out in cyberspace. This issue may be a topic of discussion to the SEC whose job is to protect investors.
Those who have invested in Private Placements, or Private REITs, may ask what the difference is. For the most part, these companies have had to comply with SEC rules and obtain a securities license, thus spending a lot of money preparing their offering documents in order to solicit investors. That does not necessarily mean the investment is safer, just compliant. One would still perform due diligence on these investments.
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