The Securities and Exchange Commission has again warned investors to be wary of the activities of unregistered investment crowdfunding platforms promising huge returns on their transactions.
Crowdfunding is the process of raising funds to finance a project or business from the public through an online platform.
In a circular released on August 3, 2022, the SEC stated that it has observed with concern the fraudulent activities of some unregistered investment crowdfunding platforms and hereby strongly advise the investing public against making investments with or through any crowdfunding platform not registered with the Commission.
The Commission stated that in recognition of the potential and importance of crowdfunding platforms and the need to protect investors through effective regulation, had in January 2021 published its crowdfunding rules and requested well-intending platforms to register with the Commission and comply with the rules by June 30, 2021.
According to the circular, “The Commission by this circular hereby notifies the general public and operators of unregistered crowdfunding platforms, that operating any crowdfunding platform that is not registered by the Commission is illegal and may lead to prosecution of such operators and loss of investment by their clients.
“Members of the public are further advised to confirm the registration status of any entity soliciting their participation in any investment scheme by contacting the Commission through its website: sec.gov.ng, e-mail: [email protected].
“A proposed rule has been developed to provide a regulatory framework permitting private companies with the required structure and mechanism in place to raise capital from the public through crowdfunding.”
It noted that Micro, Small and Medium Enterprises (MSMEs) incorporated as a company in Nigeria with a minimum of two-years operating track record should be eligible to raise funds through a crowdfunding portal registered by the commission.
According to the commission, total fees payable to parties to a crowdfunding issue shall not exceed two per cent of the total funds raised.
The Commission noted that the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.
“The maximum amount which may be raised by a small enterprise shall not exceed N70 million; and the maximum amount which may be raised by a micro enterprise shall not exceed N50 million.
The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time,” it said.
The Commission explained that retail investors might not invest more than 10 per cent of their annual income in a calendar year.
According to the rule, crowdfunding portal that is located outside Nigeria will be considered as actively targeting Nigerian investors, if the operator or the operator’s representative, promotes directly or indirectly the platform in Nigeria.
