How to prevent investment fraud

The following was posted to The Economist website regarding an article in the November 17, 2011 issue on crowdfunding.  The U.S. government is going to allow people to invest up to $10,000 into companies not registered with the Securities and Exchange Commission – as if it is right for the government to tell people what they can and cannot do with their money.

I find it a little ironic when I read of securities officials worrying about fraudsters when it comes to fundraising for business because I think securities regulators work mostly to make it easier for people in the industry to make lots of money at the expense of small investors.

Maybe the best way to protect investors would be to encourage them to ask lots of questions and not to part with their money until they have satisfactory answers.  Governments could also require companies to make public lots of information.

One of the features of the economists’ perfect competition model is that all the participants in a market have all the information they need to make sound decisions.

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