A consistently harsh critic of crowdfunding legislation, the North American Securities Administrators Association (NASAA) on Wednesday issued a comprehensive crowdfunding advisory for small businesses and entrepreneurs, demonstrating a (perhaps reluctant) acceptance of the coming U.S. capital market democratization.

The report highlights a number of crowdfunding concerns, including offers from disreputable persons and platforms seeking to prey on entrepreneurs unfamiliar with the JOBS Act’s requirements. “Any time you have a new investment vehicle, there’s always an opportunity for fraud,” Bob Webster, director of communications for NASAA, told Crowdsourcing.org in a phone conversation this afternoon. “We know that con artists tend to follow the headlines; whether its oil and gas prices, gold prices going up — you name it — they tend to gravitate towards what’s new.

“It would be a shame to see unscrupulous individuals attempt to cloud the crowdfunding market with bogus offerings,” Webster continued. “There are many positive attributes to crowdfunding; we just don’t want to see bad apples getting into the mix.”

The continued references to potential crowdfunding scams frustrate DJ Paul, the co-founder and chief strategy officer of equity-based crowdfunding platform Crowdfunder. “While we are cognizant of NASAA’s concerns with respect to bad actors and fraud, the available information simply does not support the contentions that crowdfunding will engender more risk than current securities markets,” stated Paul. “In fact, the evidence points to the conclusion that crowdfunding and the wisdom of the crowd will engender less risk and potentially less fraud than many current financial markets.”

In addition to recommending that entrepreneurs choose reputable brokers and funding portals to assist with their offerings, the NASAA advisory also reminds business owners not to discount the importance of sufficient disclosure — an invaluable piece of advice. While the JOBS Act provides a crowdfunding exemption from securities law registration requirements, it doesn’t change disclosure requirements for securities laws. Given the massively high rate of legitimate business failure — approximately 50 percent of startups fail within the first five years of operation, according to NASAA — sufficient disclosure of all material facts and risks to investors will protect business owners from criminal fraud claims and administrative enforcement actions.

NASAA also notes that the SEC rulemaking is ongoing, warning investors not to conduct a crowdfunded offering until the revised federal and state securities laws are in place. In addition, the organization suggests that despite the ease of crowdfunding an offering, legal counsel is still useful for securities compliance purposes.

NASAA’s latest advisory contains one final item: an alternative funding suggestion. “Crowdfunding may be less expensive than doing a public offering of securities, but it will be more expensive than other alternatives,” reads the report. “Federal and state laws provide other ways for a company to raise money from limited numbers of investors with little or no cost.”

In conversation with Crowdsourcing.org via Skype, Startup Exemption co-founder Sherwood Neiss questioned the accuracy of this assertion. “Well, if that were the case, then we probably wouldn’t [have worked so hard to pass crowdfunding legislation],” said Neiss. “Don’t just say it’s available, say here’s a link to people with $50 billion dollars that can’t rid of it. But don’t say the money is available, because we have yet to see those open doors.”

The advisory is not so much a shot at the crowdfunding industry as it is a protective measure, explained crowdfund investing expert Doug Ellenoff. “Both federal and state regulators have a legitimate interest in ensuring that there’s a balancing of interest between the investing public and the legislative intent of the Crowdfunding Act are properly managed, so there’s not a flood of complaints coming into the state securities program,” said Ellenoff, a partner at law firm Ellenoff Grossman & Schole. “However, that has to be equally balanced by understanding the legitimacy of the program, all that the industry is seeking to accomplish, as well as protecting investors — which is not only a good thing to do overall, but it’s in their own self-interest.”

Passed by a bipartisan Congress and enacted by President Obama on April 5, the JOBS Act aims to remove regulatory burden on businesses seeking to raise capital and eventually go public. While some portions of the Act are already in effect, like the exemptions for “emerging growth companies,” the crowdfunding exemption requires additional SEC rulemaking and is scheduled to go into effect in early 2013.