 Crowdfrauding: Avoiding Ponzi entrepreneurs when investing in new venturesMelissa S. Baucus and Cheryl R. Mitteness Business Horizons, 2016, vol. 59, issue 1, 37-50 Abstract: Crowdfunding has gained substantial interest in the U.S., allowing entrepreneurs to raise startup capital in exchange for equity in their ventures. This approach to equity capital can open up new sources of venture finance to legitimate entrepreneurs, but little attention has been given to how it offers new opportunities for illegal entrepreneurs to defraud investors. We adopt a forensic approach to examine entrepreneurs who launch Ponzi ventures—businesses that continually bring in new investors in order to use their money to pay returns to earlier investors—to demonstrate the ease, creativity, and audacity with which these illegal entrepreneurs operate. The provided examples of Ponzi entrepreneurs show how easily they can circumvent the safeguards purported to protect investors: screening by ‘the crowd,’ transparency and documentation requirements, independent audit reports, and withholding of funds until the venture's financial goal has been met. In this article, we offer possible solutions to help protect investors, legitimate entrepreneurs, and business in general from the damage created by illegal entrepreneurs. Keywords: Venture finance; Crowdfunding; Crowdfrauding; JOBS Act; Illegal entrepreneurship; Ponzi scheme (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bushor:v:59:y:2016:i:1:p:37-50 DOI: 10.1016/j.bushor.2015.08.003 Access Statistics for this article Business Horizons is currently edited by C. M. Dalton More articles in Business Horizons from Elsevier |
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