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Crowdfunding Industry Establishes Standards to Help Prevent Fraud

Crowdfunding Industry Establishes Standards to Help Prevent Fraud

As the JOBS Act and the provisions to legalize crowdfunding within it were becoming the most talked about item on Capitol Hill last week, Crowdfunding Accreditation for Platform Standards (CAPS) debuted here on

The CAPS program establishes standards for crowdfunding operations and will govern the accreditation of crowdfunding platforms. As the industry begins the process of creating a self-regulatory framework that will protect investors from fraud, CAPS will be just one key pillar within this broader effort.

More than 400 crowdfunding platforms were operating in January 2012. As industry leaders recognized that investors would need help and more information when funding ventures through these platforms, the CAPS program was created to ensure a secure and reliable experience. Now CAPS-accredited platforms will display the CAPS badge on their sites to demonstrate they have been accredited based on qualification criteria in four areas:

  • Operational transparency
  • Security of information and payments
  • Platform functionality
  • Operational procedures
The initiative to establish an accreditation program began long before the JOBS Act was introduced and passed by the House of Representatives, because irrespective of any mandates that may soon come from Congress or elsewhere within our government, we as an industry have an obligation to establish high-standards of operations for platforms. CAPS is a means of signalling publically which platforms have signed up to be independently audited to confirm they meet such high operational standards.

Now that crowdfunding legislation is gaining momentum in Washington, the future of the industry will be determined by its ability to create a consistent and safe environment.

As the intermediary between investors and entrepreneurs, crowdfunding platforms owe fundraisers and investors a high degree of transparency and the ability to facilitate secure transactions to reduce the risk of fraud. If the industry can deliver in these areas, the potential is unlimited, and crowdfunding can effectively become the backbone of both SME financing and philanthropic donations.

The CAPS Council is the governing body of CAPS, currently represented by founders of a number of leading platforms and key figure representatives from within the crowdfunding industry. Members of the CAPS Council include attorney Joe Stansell; Sherwood Niess, founding member of the Start-up Exemption; and leading lobbyist and advocate for crowdfunding Kevin Lawton, author of the Crowdfunding Revolution.

Following an initial private invitation-only launch,seven organizations – Crowdcube, Grow VC, Crowdfunder, GreenUnite, HelpersUnite, Symbid, Give A Little and Fundrazr – have been accredited by the CAPS program and another 20 organizations are currently undergoing the process. More than 200 crowdfunding platforms are expected to apply for accreditation in 2012.

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