The Securities and Exchange Commission (SEC) Nigeria has again warned investors on the activities of unregistered investments crowdfunding platforms in the country and advised members of the public to avoid transacting any business on the platforms.
Crowdfunding is the process of raising funds to finance a project or business from the public through an online platform.
Crowdfunding portal is a website, portal, intermediary portal, application, or other similar module that facilitates interaction between fundraisers and the investing public.
The SEC in a circular released on Wednesday, stated that it had noticed with growing concern the fraudulent activities of some unregistered investment crowdfunding platforms and strongly advised the investing public against making investment(s) with or through any of the platforms not registered with it.
The capital market regulator maintained that in recognition of the potentials and importance of crowdfunding platforms and the need to protect investors through effective regulation, in January 2021 published its Crowdfunding Rules and requested well-intending crowdfunding platforms to register with it and comply with the rules latest by June 30, 2021.
The SEC stated: “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: sec@sec.gov.ng, Phone no: 09-4621168”, the commission added.
It would be recalled that the commission had recently released rules on Crowdfunding, stressing that “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.”
The rules required 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 rules, total fees payable to parties to a crowdfunding issue shall not exceed two per cent of the total funds raised while the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.
The rules further provided: “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,” the SEC added.
The commission explained that retail investors might not invest more than 10 per cent of their annual income in a calendar year.
The rules further provided that 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.
Also, the rules stated that a crowdfunding portal might be registered and operated only by an operator registered with SEC as a Crowdfunding Intermediary.
In addition, the rules provided that only entities registered with the Commission as an Exchange, dealer, broker, broker/dealer or alternative trading facility as prescribed under the Act and the SEC Rules and Regulations might be registered as a Crowdfunding Intermediary.
The regulatory requirements also stipulated that crowdfunding portal or crowdfunding intermediary that failed to comply with the rules shall be liable to a fine of not less than N1 million and the sum of N10,000 for every day the violation continues.
