Mitigating Fraud in Crowdfinance Webinar Slides

MITIGATING FRAUD IN CROWDFINANCE

September 24, 2015 To listen to the replay of this webinar, please go to

https://www.brighttalk.com/webcast/9407/167837

Join us for a live interactive webinar session where Paul Niederer, the CEO of the Australian Small Scale Offerings

Board (ASSOB), will discuss how the world’s oldest equities crowdfunding platform has been able to remain FRAUD

FREE after completing hundreds of raises in over 10 years in operation.

Webinar viewers will learn how to identify red flags before deploying capital on equity crowdfunding or marketplace

lending platforms as well as gain an understanding of “Investor Commanded Transparency”.

A MUST-VIEW webinar for novice investors, experienced venture investors (especially FinTech investors), financial

advisors, issuers, underwriters and regulators.

Paul Niederer

CEO of ASSOB

Dara Albright

Founder of Dara Albright Events

This webinar is sponsored by Crowdfund Insider, the leading news and information web site

covering the emerging global industry of disruptive finance including crowdfunding and peer-to-

peer / marketplace lending.

Crowdfinance will destroy

investors and bring

imminent economic doom

Crowdfinance will

bring peace, harmony

& prosperity

to the world!

Unwarranted

fearDoubt Curiosity Intrigue

Irrational

ExuberanceSkepticism

daraalbright.com | https://www.linkedin.com/in/daraalbright | Twitter: @tothestoics

THE CROWDFINANCE SENTIMENT SPECTRUM

http://www.daraalbright.com/

https://www.linkedin.com/in/daraalbright




ASSOB BY THE NUMBERS

10 – Number of years in operation

$144 million plus – Number of dollars raised

300 – Number of listings to date

ZERO INSTANCES OF FRAUD

* Predominantly serves unaccredited investors




Special thanks to our sponsor

www.crowdfundinsider.com

With Great Investing Power

Comes Great Responsibility




YOU WOULDN’T SKYDIVE WITHOUT A PARACHUTE

WHY WOULD YOU INVEST WITHOUT PROPER DUE DILIGENCE?




RED FLAG #1: FREQUENT CHANGING OF THE GUARDS

If a company changes directors, advisors and employees faster than most of Hollywood switches spouses, it is usually a GIANT red flag.

Identifying frequent turnover:

Archive press releases

Google

Way Back Machine: archive.org/web/

aiHITData.com


http://archive.org/web/

http://www.aihitdata.com/



RED FLAG #2: STALE AND IRRELEVANT NEWS

Dated news

Fluff pieces

Website relaunches

Product upgrades

Strange bedfellows

Anything that doesn’t appear to be monetizable

“The only time you should ever look back is to see how far you’ve come.” – Author Unknown




RED FLAG #3: ALL STORY, NO SUBSTANCE

STORY

“We have no real competition.”

“Our platform will completely disrupt financial services.”

“We have aligned with some of the biggest companies on the planet.”

“Well-known VCs have expressed interest in participating in this soon-to-be-oversubscribed round.”

SUBSTANCE

“We’ve captured another 15% of the market share last year.”

“We’ve been able to convert 70% of trial users into paid subscribers.”

“Our recent partnerships have directly contributed 10% to last quarter’s revenues.”

“As you can see from the attached cap table, some very influential investors have invested in multiple rounds.”




RED FLAG #4: WHEN LAWSUITS BECOME AN IMPEDIMENT




ADDITIONAL RED FLAGS

CEO goes radio silent

Implausible Explanations

Faulty Math

Constant pivots

The never-ending financing round

Capital Dependency




INVESTOR COMMANDED TRANSPARENCY

Investor Commanded Transparency is a new theory premised on the notion that transparency be demanded by investors as opposed to being mandated by regulators




Presented by Paul Niederer, C.E.O.

ASSOB International

#paulniederer /[email protected] +61 411 968 362

MITIGATING FRAUD IN CROWDFINANCE

mailto:[email protected]?subject=

• CEO - Australian Small

Scale Offerings Board

(ASSOB)

• 10th year of operation

• Over $144 million raised

• Over 300 listings to date

• Predominantly unaccredited

investors

• More Title III than Title II

A PROPERLY MANAGED CROWDFINANCE PORTAL WILL LESSON THE CHANCE OF FRAUD

FRAUD DEFINITIONS

Usually include statements like ...

• untrue statement of a material fact

• representation that the person making it knows is not true

• doesn’t have the basis to make such a statement

• to omit to state a material fact that is necessary in order to

make the statements made, in the light of the circumstances

under which they were made, not misleading

STOPPING FRAUDSTERS IS NOT OUR MISSION. LESSENING THE RISK IS A COMPLEMENTARY OUTCOME OF A RESPONSIBLE PLATFORM

BUT WHAT IS A PLATFORM

Risk Matrix

Top Right

Bottom Left

Easy Money

Ba

rrie

rs

THERE ARE TOO MANY BARRIERS FOR A FRAUDSTER TO CHOOSE THE ASSOB PATH TO ENRICHMENT

... meaning it’s easy to get money elsewhere

Barriers

1. Intermediary (Declaration Issuer appears legitimate)

2. Intermediary precluded from pecuniary interest

3. Directors Liability

4. Upfront Fee

5. Founders and Entity Due Diligence

6. Marketing Docs Due Diligence

7. Early Bird / FFF marketing (Own Crowd feedback)

8. Live Marketing (Crowd feedback)

9. Funding Targets & Escrow

10. 10 day Cooling off period

11. 3 Directors and Auditor

12. Wisdom of the Crowd

StoryClarity

Supporters

TeamGrounded

Experience &

Enthusiasm

Believability

Relevance

CredibilityCapability

Business

Model

Fundability Circles ©Paul Niederer 2015

1.

Designed by Joey Roth

JOEYROTH.COM

http://joeyroth.com/

Learnings

1. Due Diligence needs to nail mis-representation and

over selling

2. Any transaction with related parties and self dealing

need to be banged on the head

3. Full transparency on transactions and expectations

4. Standardised and vetted templates and processes

5. Ongoing reporting responsibilities and communications

6. Report wrong doers to authorities and advise

shareholders to do the same

Main D/D points ASSOB

Raise

Admission

Part One

Listing

Part Two

Ongoing

Quarterly

Culture of Compliance and Governance

Misrepresentation

Reckless Disregard

Honest Mistake

Honest Omission

Discovered during ASSOB D/D and ongoing checking

• Failure to transfer intellectual property into capital

raising entity

• TM expired, patents lapsed

• Failure to properly disclose contracts not at arms-length

• Company or business does not exist. Founder or

associate names are fake.

• Company or business claims to be associated with

reputable businesses

Misrepresentation

Reckless Disregard

Honest Mistake

Honest Omission


• Domain names are usually not in the correct names of

the capital raising company.

• Founders Issuing equity during a capital raising in

addition to those in the raise offer document.

• Failure to observe basic corporate governance

obligations – lodging share notifications, holding

Stockholder Meetings, preparing audited financials

• Failure to send stock certificates or holding statements

to investors

Misrepresentation

Reckless Disregard

Honest Mistake

Honest Omission


• Manipulation of share allocation through undisclosed

debt for equity transactions, equity for services.

• Raised proceeds are being repaid to founders

• Material changes / events occurring and not keeping

investors updated, e.g. intellectual property expired,

material contracts fallen through.

• Undisclosed debt for equity or convertible notes

transactions that exist prior to the raise

Misrepresentation

Reckless Disregard

Honest Mistake

Honest Omission


• The money is not being used as detailed in the Use of

Proceeds in the investment document

• Misleading or deceptive claims made by the company

or business about their product / services.

• Unsubstantiated “green” claims – this is a big one for

those companies claiming that it reduces carbon

footprints and uses less energy.

Presented by Paul Niederer

#paulniederer /[email protected] +61 411 968 362

THANK YOU ... ANY QUESTIONS

Request a copy of the presentation

mailto:[email protected]

Thanks for joining us today!

To listen to the replay of this webinar, please go to

https://www.brighttalk.com/webcast/9407/167837

Economy & Finance

Mitigating Fraud in Crowdfinance Webinar Slides