DEAR GARDEN STATE TRUST COMPANY:
I’VE HEARD THAT SOON WE’LL BE SEEING LEGITIMATE INVESTMENT OFFERINGS ON LINKEDIN AND FACEBOOK. IS THAT TRUE?
—SOCIAL NETWORK SKEPTIC
Maybe. The rules for advertising investment solicitations were overhauled in the Jumpstart Our Business Startups Act of 2012. The goal was to make it easier for young companies to raise capital. In theory, yes, companies now can use social media in their efforts to attract investment capital.
In practice, few companies have taken the plunge as yet. The SEC remains concerned about fraud, and issued a 180-page memo last year proposing additional requirements to be met by such investor outreach. Perhaps most significantly, these investments are not open to everyone. Investors need to have $1 million in liquid assets or $200,000 in annual income, and the companies seeking funding need to take reasonable steps to learn these details about their investors.
Still, it is worth remembering, should you see an investment offering on social media, that it may not be just a scam after all.