Avoiding Scams

Scams come in all shapes and sizes but share the same goal: to take someone’s hard-earned money. At KoreConX, we talk a lot about the importance of compliance with the regulations, because our platform is built to make it as easy as possible for companies to raise capital compliantly. But we haven’t talked all that much about why the regulations themselves are so important, and one of the main reasons is to protect against scams. In this and future posts, we’ll discuss some general and specific scams and their effect on investors and issuers. 


The internet has made it easier for criminals to reach potential victims, but compliance with regulations is an excellent protection against potential scams out there such as identity theft and investment fraud. There are, of course, many sorts of scams that the SEC regulations don’t directly touch, but understanding the reasons for the regulations can help you adopt best practices that will protect you against other scams as well. 


Regulations such as KYC (Know Your Customer) and AML (Anti Money Laundering) require participants to be properly identified – this alone can cut out much fraud before it even starts. Simply put, bad actors cannot be held accountable if they cannot be identified, so they often try to use a fake identity, or steal someone else’s. Similarly, companies seeking investors must make available financial and other information, an offering circular, and other data available, so potential investors know their money is going to an actual registered company with identified directors and officers. 


Who is Affected by Scams?


Scams hurt almost everyone indirectly by adding mitigation costs, driving up insurance premiums, and harming investor confidence, but the most obvious damage is financial: Online fraud in 2022 accounted for $41 billion stolen globally, with this number expected to rise to $48 billion in 2023. The burden of this loss does not fall evenly across all age groups. Adults between the ages of 20 and 29 reportedly have the lowest loss per person, at $2,789. Individuals in their 50s suffered the highest losses on average per person, with a total loss of $9,864 each. Those in their 30s lost an average of $5,570 each, and those in their 40s lost $7,832. Interestingly, the data shows that, on average, older Americans lost the most money to online fraud.


It may be that younger people may have lost less money on average simply because they have fewer financial assets. However, the report emphasizes that it is important to take these figures with a pinch of salt, as the FBI’s numbers include businesses, which can suffer much greater losses than the average person. Nonetheless, these statistics highlight the importance of online safety and the need for targeted prevention measures for different age groups.


Scams to Look Out For


There are many scams to be aware of, especially online, here are just a few of them:


Phishing: Phishing is sending deceptive emails or messages that appear as though they’re from a legitimate source to get personal information. You may receive an email asking for sensitive information, such as your credit card number or bank account details. The scammers use this information to make fraudulent purchases, withdrawals, or transfer funds. Cybercriminals may also try to use phishing emails as a way of getting you to click on malicious links that will download malware onto your computer. Malware can be used to steal personal information and passwords or even lock up all the data on your computer until you pay a ransom.


Pyramid Schemes: Pyramid schemes are a form of fraud that involves promising participants large returns for recruiting others into the scheme. Despite the promises, none of the money invested by new participants ever makes it back to them. Instead, it is funneled upwards to those already in the scheme, who will eventually take all of the money and disappear.


Crypto Schemes: Many investors are eager to get in on the crypto market, but the crash of FTX reminds us of the importance of due diligence. New technologies are always especially rich breeding grounds for scams, when people don’t wait to find out how it actually works because they are afraid of missing out on the next big thing.  


What Can You Do To Protect Yourself?


The best way to protect yourself from scams is by educating yourself about them and being aware of potential signs that something might not be legitimate. Here are a few tips you can use when someone contacts you:


  • Verify the identity of anyone who contacts you. Do not send money or account details until you have verified their identity.
  • Be suspicious if someone is asking for personal information, such as passwords or bank account numbers. Legitimate businesses and organizations should never ask for this type of information via email or phone call.
  • Be wary of any offers that seem too good to be true. If someone is offering you something for free or an unbelievable return on investment, it’s likely a scam.
  • Research the company or individual before making any investment decision. Look at reviews from other customers and check with the Better Business Bureau if necessary. 
  • Don’t give out personal information online. Be cautious when sharing your name, address, or other identifying details on websites, as this can make you a target for scammers. This includes answering “just for fun” quizzes on social media that can be used to figure out your mother’s maiden name, the name of your first pet, and other likely security questions.


The best way to protect yourself from scams is by staying informed and knowing the warning signs of fraudulent activities. Keep following this series on scams to learn more about different types of scams and how to protect yourself from them. If you have any questions or topics you’d like to see discussed in more detail, please reach out and share your ideas with us!

Who Does Due Diligence on Companies using RegA+?

Due diligence is an essential part of the investment process. Especially following the passage of the JOBS Act in 2012, which expanded Regulation A+ (RegA+), companies now have additional opportunities to seek capital from investors. This has created a need for due diligence on these companies that is both thorough and efficient. In this blog post, we will discuss who does due diligence on companies using RegA+ and who does due diligence on companies using RegA+.


What Is Due Diligence?


The Securities Act of 1933, a result of the stock market crash years earlier, introduced due diligence as a common practice. The purpose of the act was to create transparency into the financial statements of companies and protect investors from fraud. While the SEC requires the information provided to be accurate, it does not make any guarantees of its accuracy. However, the Securities Act of 1933 for the first time allowed investors to make informed decisions regarding their investments.  


In the context of raising capital through RegA+, due diligence means that the issuer has provided all of the necessary information to investors and securities regulators so that they comply with securities laws. This may include information like:


  • Funding: The issuer should provide a detailed plan of how the money raised through RegA+ will be used.
  • Products/Services: The issuer should provide a clear description of their products and services, as well as any potential advantages that they may have over the competition.
  • Business Plan: The issuer should provide a detailed and comprehensive business plan outlining their current and future projects, as well as realistic projections based on their financial reports.
  • Management Team: The issuer should disclose information about the company’s officers, founders, board members, and any previous experience in business that may be relevant to investors.


Issuers should also use a registered broker-dealer as an intermediary to comply with Regulation A+ (RegA+). By doing this, they will ensure that they are meeting their due diligence requirements.


Who Is Responsible for Doing Due Diligence on companies using RegA+?


When it comes to due diligence for companies using RegA+, typically, the issuer’s FINRA Broker-Dealer is responsible for conducting due diligence both on the potential investors and the company itself. The broker-dealer will be required to perform regulatory checks on investors such as KYC, AML, and investor suitability to ensure investors are appropriate for the company. Additionally, they will perform due diligence on the issuer so that they can be assured that the company is operating in a manner compliant with securities laws so that they do not present false information to investors. Failing to meet compliance standards can result in the issuer being left responsible for severe penalties, such as returning all money raised to investors. 


However, both investors and issuers have a responsibility for due diligence as well. Investors should research the company thoroughly and make sure they understand all details surrounding the offering before investing their money. This includes reviewing all relevant documents, such as the offering circular, stock subscription agreements, and other related materials that give them a good understanding of the investment opportunity and its potential risks.


Issuers also contribute to due diligence as they must work with their FINRA Broker-Dealer to ensure that their offering is compliant with all laws and regulations. This includes verifying all information provided in the offering materials and making sure it meets regulatory requirements. The issuer must also disclose all information that could influence an investor’s decision to purchase the securities. 


Due diligence is essential for both investors and issuers when it comes to investments under Regulation A+ (RegA+). Ensure that thorough due diligence is conducted ensures that the offering is conducted in a manner that aligns with the best interests of both investors and the issuer. Ultimately, due diligence is a key component when it comes to investments under Regulation A+ (RegA+) and should not be overlooked.


Jumpstart Our Business Startups: Democratizing Access To Capital

The JOBS Act (Jumpstart Our Business Startups) reached its 10th anniversary in 2022 and we keep working on education to empower people through private capital markets. Even though it has already been a decade, we are still clearing the land to open up more opportunities. The Wharton Magazine anticipated that the JOBS Act would be as impactful in changing how we allocate capital as social media has been in how we manage time. Both entrepreneurs and regular people, such as customers, are able to be part of the financial market. Brand advocates, for example, can easily become shareholders, democratizing access to capital.


Meaningful changes


Title V in the JOBS Act raised the number of possible shareholders to 2,000, while 499 can be non-accredited. To give an exact feel of how deep this change is, before the JOBS Act, the maximum number of shareholders was 500, all of whom had to be accredited. This opens up opportunities for nearly everyone who wants to invest in the private capital market. And the bigger pool of potential investors also benefits the companies looking to raise capital. 


With regulations such as A (RegA+) and crowdfunding (RegCF), both accredited and non-accredited investors can be part of capital raising. Companies do not need to go public anymore to raise capital as entrepreneurs maintain control. Using RegA+, companies can now raise up to $75 million every 12 months. For RegCF, the limit is $5 million.


Market size


There are plenty of possibilities that arise from the regulations and how they change companies’ perspectives. The available pool of capital is expected to reach up to $30 trillion by 2030, making it a promising resource for companies. Also, there are several online services and platforms that have come up in recent years, such as KoreConX, but we will talk about those in other posts.


Equity Crowdfunding with RegCF


This form of capital raising for non-accredited investors is very new (2016) but it has shown steady growth since it was introduced. In its first full year (2017), $76.8 million were raised like this. In 2021, this number skyrocketed to $502 million. Startup customers, closest clients in a database, and closest network members can become valuable investors. Brand advocates can be more motivated to make a difference in a startup’s life once they can become shareholders.




Although there are great possibilities for companies going for a RegA+, there are still some important investments involved. As a general rule, it is a good idea to be ready to spend at least $250,000 on a successful RegA+ offering. There are several steps that have to be accomplished, such as filing, which involve fees for lawyers and auditors, broker-dealer firms, investor acquisition costs like PR/advertising and social media, and online roadshows.


How Regulations Democratize Access to Capital


If you think about it, democracy is all about empowering as many people as possible to participate in and have a say in how society develops. The JOBS Act does that first and most directly by giving ordinary people more opportunity to own a stake in businesses, to become shareholders. But that wider pool of potential investors also empowers more entrepreneurs to get the funding to bring their ideas to fruition, which in turn creates jobs, empowering still more people to participate and, if they choose, to make their own investments. The entire ecosystem flourishes.


If you want to understand more about how the regulations help business grow and jumpstart our business startups, you can take a closer look at presentations from the father of the JOBS Act, David Weild IV, founders, funding portals and investors in our YouTube Channel.