Search Mediators Near You:

Online Arbitration as a Remedy for Crowdfunding Fraud

Disputing Blog by Karl Bayer, Victoria VanBuren, and Holly Hayes

C. Steven Bradford, Henry M. Grether, Jr. Professor of Law at the University of Nebraska College of Law, has published “Online Arbitration as a Remedy for Crowdfunding Fraud,” Florida State University Law Review, Forthcoming. In his journal article, Professor Bradford discusses creating a simplified online arbitration remedy to be used in situations where crowdfunding fraud has occurred.

Here is the abstract:

It is now legal to see securities to the general public in unregistered, crowdfunded offerings. But offerings pursuant to the new federal crowdfunding exemption pose a serious risk of fraud. The buyers will be mostly small, unsophisticated investors, the issuers will be mostly small startups about whom little is known, and crowdfunded offerings lack some of the protections available in registered offerings. Some of the requirements of the exemption may reduce the incidence of fraud, but there will undoubtedly be fraudulent offerings.

 

An effective antifraud remedy is needed to compensate investors and help deter wrongdoers. But, because of the small dollar amounts involved, neither individual litigation nor class actions will usually be feasible; the cost of suing will usually exceed the expected recovery. Federal and state securities regulators are also unlikely to focus their limited enforcement resources on small crowdfunding offerings. A more effective remedy is needed.

Arbitration is cheaper, but even ordinary arbitration will often be too expensive for the small amounts invested in crowdfunding. In this article, I attempt to design a simplified, cost-effective arbitration remedy to deal with crowdfunding fraud. The arbitration remedy should be unilateral; crowdfunding issuers should be obligated to arbitrate, but not investors. Crowdfunding arbitration should be online, with the parties limited to written submissions. But it should be public, and arbitrators should be required to publish their findings. The arbitrators should be experts on both crowdfunding and securities law, and they should take an active, inquisitorial role in developing the evidence. Finally, all of the investors in an offering should be able to consolidate their claims into an arbitration class action.

This and other scholarly works written by Professor Bradford may be downloaded without charge from the Social Science Research Network

                        author

Beth Graham

Beth Graham received a J.D. from the University of Nebraska College of Law in 2004 and a M.A. in Information Science and Learning Technologies from the University of Missouri in 2006. She also holds a B.S. in Public Administration from the University of Nebraska-Omaha. She is licensed to practice law… MORE >

Featured Mediators

ad
View all

Read these next

Category

Arbitration & Mediation In The Arab World: A Growing Phenomenon

Originally by Nasser & Vicky, printed here on ArabComment.   Alternative dispute resolution (ADR) mechanisms in the Arab world have been growing hand in hand with the resurgence of various...

By Nasser Ali Khasawneh, Vicky Sfeir
Category

US MSHA Unveils Pilot Mediation Program

From the Disputing Blog of Karl Bayer, Victoria VanBuren, and Holly Hayes.Platts reports that the U.S. Mine Safety and Health Administration (MSHA) just launched a pilot mediation program. Here are...

By Victoria VanBuren
Category

A Top Ten List of Keys to Success in Court-Ordered Mediation

This article appeared in the Detroit Legal News on January 30, 2015 and is being reprinted with permission by the publisher.Given that virtually all state court civil cases end up...

By Paul Monicatti

Find a Mediator