#bb77b7
Platform Business-Conduct Issues and Failure
Platform operators and affiliated entities may perpetrate misconduct across various scenarios, impacting investors. These instances can span from outright fraud, such as embezzling customer funds by platform operators, to promoting fraudulent investments via the platform. Additionally, engaging in unfair conflicted behavior that prioritizes the operator's interests at the expense of investors is another concern. Inexperienced or incompetent operators can further escalate such risks, particularly in markets with numerous new entrants. More+
- Certain business models can elevate the risk of conflicts of interest and adverse operator behavior towards investors. For instance, conflicts may emerge between platform operators' obligations to investors and the financial incentives they gain from ensuring the success of crowdfunding campaigns. This conflict becomes more pronounced in models where an operator's compensation hinges on the campaign's success.
- A platform operator might also serve as a nominee for investors regarding the securities they invest in. In this role, the operator could wield rights, like voting rights, on behalf of the investor. However, if the operator or affiliated parties possess conflicting interests, such as their own shareholdings in the issuer, they may not consistently exercise these rights in alignment with the investor's interests.
- The failure of a crowdfunding platform poses significant risks to investors, depending on the essential post-investment services it provides. These services may include holding client funds, facilitating payments, acting as a nominee for investors, and operating a bulletin board or secondary market for securities. Losing access to these services can lead to operational and financial harm for investors. Furthermore, if investors' funds held by a failing platform are not adequately protected, they may be lost in the event of the platform's insolvency.
