The Australian Securities and Investments Commission (ASIC) has been monitoring the increase in crowd funding for projects through the internet and social media, and has some advice on how not to break the law.
As crowd-funding sites such as Kickstarter gain popularity, and success stories such as the Android gaming platform Ouya surface, more and more people are looking to get a slice of the action. ASIC commissioner Greg Tanzer said that ASIC has been monitoring crowd-funding programs, and that some might be regulated by ASIC.
"Crowd funding, as a discrete activity, is not prohibited in Australia, nor is it generally regulated by ASIC," Tanzer said. "However, depending on the particular crowd-funding arrangement, ASIC's view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document.
"These activities are regulated by ASIC under the Corporations Act and ASIC Act, and may impose legal obligations on operators of crowd-funding sites and on people using those sites to raise funds."
For instance, a crowd-funding site would be considered as a managed investment scheme covered by the Corporations Act if funds contributed are pooled to produce financial or property benefits for the contributors.
Failing to meet obligations under the Corporations Act can lead to fines and/or a prison sentence.
Tanzer said that ASIC has written to Australian-based operators of crowd-funding websites, stating the legal obligations that such investment schemes may have.
Tanzer said that those wishing to take part in crowd-funding projects should be aware of the risks of fraud, the risk of the projects failing to be completed and the possibility that money passed to a crowd-funding website may be lost and not passed on to the project creator, due to fraud or the bankruptcy of the website operator.