One of the biggest criticisms I’ve brought up regarding the equity crowdfunding provisions of the JOBS Act is that it requires funding portals to verify the eligibility of investors — namely, that they have not exceeded their investment limitations under the Act. I’ve said that such a requirement would be impossible for funding portals to fulfill without a central repository of verified information regarding investors, where each funding portal could record each person’s transactions on their sites so that other portals could go on there and check to see how much each person has invested under the equity crowdfunding exemption.
A company has stepped forward to construct a system that appears to meet this need for funding portals. ciValidator Corp. is now in a beta test of its automated regulatory compliance system for the crowdfunding industry. Although the details about the system on the company’s website are a bit vague, it appears that ciValidator not only monitors against and identifies fraudulent crowdfunding platforms and campaigns (both the equity and non-equity variety), a mounting concern for crowdfunding critics, but also will allow funding portals to ensure that investors are respecting their investment limits under the JOBS Act.
The flaw in ciValidator’s model is if funding portals do not join their system or upload information about investor activity on their sites (what’s to stop investors from exceeding their limits on sites not in ciValidator’s system?); however, if ciValidator can gain the kind of market traction or implicit governmental support (likely through SEC regulations) such that it becomes all but compulsory for funding portals to join, then this program may have solved one of the biggest hurdles to equity crowdfunding presented by the JOBS Act.