Nigeria’s Securities and Exchange Commission warns of unregistered crowdfunding platforms

The Securities and Exchange Commission (SEC) has warned investors about the illegality of unregistered investment crowdfunding platforms.

The Commission stated that this is a circular dated August 3, 2022, in which it acknowledged the presence of unregistered crowdfunding platforms while warning investors to deal with them.

Crowdfunding is the process of raising funds to fund a project or business from the public through an online platform. A crowdfunding portal is a website, intermediary portal, application or other similar module that facilitates interaction between fundraisers and the investing public.

What the SEC says

The SEC expressed concern that it has observed the fraudulent activity of some unregistered investment crowdfunding platforms and hereby strongly advises the investing public not to make any investment with or through any crowdfunding platform not registered with the Commission.

The Commission stated that, given the potential and importance of crowdfunding platforms and the need to protect investors through effective regulation, it published its crowdfunding rules in January 2021 and requested well-intentioned crowdfunding platforms to register with the Commission and follow the rules. live no later than June 30, 2021.

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According to the circular, the Commission, through this circular, is informing the general public and operators of unregistered crowdfunding platforms that operating a crowdfunding platform not registered by the Commission is illegal and may lead to prosecution of such operators and loss of investments by their customers.

“Members of the public are further advised to confirm the registration status of any entity requesting their participation in an investment plan by contacting the Commission through its website: sec.gov.ng

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What you should know

The committee, which recently released crowdfunding rules, said: “A proposed rule has been developed to provide a regulatory framework that provides private companies with the required structure and mechanism to raise capital from the public through crowdfunding”. It noted that micro, small and medium-sized enterprises (MSMEs) established as businesses in Nigeria with a track record of at least two years must be eligible to raise funds through a crowdfunding portal registered by the commission. According to the committee, the total fees to be paid to parties in a crowdfunding issue should not exceed 2% of the total money raised. The committee noted that the maximum amount that can be raised by a medium-sized company will not exceed N100 million. “The maximum amount that can be raised by a small business should not exceed N70 million; and the maximum amount that can be raised by a micro-enterprise cannot exceed N50 million. “The limits set forth above do not apply to MSMEs operating as digital commodities investment platforms or other MSMEs that may be designated by the committee from time to time,” it stated. The committee explained that retail investors should not invest more than 10% of their annual income in any calendar year. As per the rule, a crowdfunding portal located outside of Nigeria is considered to be actively targeting Nigerian investors, if the operator or the operator’s representative promotes the platform directly in Nigeria. It stated that a crowdfunding portal can only be registered and operated by an operator registered with the SEC as a crowdfunding intermediary. The rule added that only entities registered with the Commission as an exchange, dealer, broker, broker/dealer or alternative trading facility as required by law and SEC rules and regulations can be registered as a crowdfunding intermediary. . It added that a crowdfunding portal or crowdfunding intermediary who does not comply with the rules could be fined not less than N1 million and an amount of N10,000 for each day that the violation continues.

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