Why Crowdfund Investing Portals Must Abstain from Curation
Curation is a practice used by some donation-based crowdfunding platforms that promotes some crowdfunding campaigns over others. An example would be Kickstarter’s “Campaigns We Love” e-mails that draw attention to particular campaigns and increase their ability to raise capital. This practice is allowed on donation (or perks-based) crowdfunding platforms because individuals are giving money away and not expecting a financial return.
The SEC has determined that crowdfund investment portals cannot curate because the practice of promoting one investment opportunity over another would be deemed as “providing investment advice” to investors and picking “winners and losers.”
Only individuals and organizations that hold proper FINRA certifications can provide investment advice to individual investors. This fact provides a very bright line to separate funding portals from broker-dealers. Portals must treat this distinction with extreme caution and not cross the line into curation or giving investment advice.
The SEC also has stated that funding portals may not make arbitrary decisions about which issuers to accept or reject from their platforms because doing so is a form of investment advice. Platforms may have set standards in their terms of service for activities or types of businesses they will not accept, and they may decline to provide services based on such predetermined standards.
For example, a portal may have terms of service that state that it doesn’t work with tobacco industry companies, and it may then legally decline to work with a company in that industry.