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One way to possibly make this work is to require the money to go into an escrow account at a bank, to be used to guarantee a loan to the business getting funded
by vannevar 15y ago
One way to possibly make this work is to require the money to go into an escrow account at a bank, to be used to guarantee a loan to the business getting funded. The business would put up its stock as collateral. If the business defaulted on the loan, the bank could seize the stock and the escrow account (but only after pursuing all possible avenues to recover from the debtor business). If the loan was paid back, the stock would be disbursed to the investors. This arrangement wouldn't prevent the possibility of a loss, but by introducing the bank as an intermediary (with the attendant requirements for a loan application), it should help weed out complete scams.
- jedberg 15y agoWhy would having a bank involved weed out scams if it were impossible for the bank to lose money? This is basically what happened during the mortgage bubble -- the banks lowered their standards because they knew the government would back up the loans.
- vannevar 15y agoThe bank would still have liability to the investors as third-party beneficiaries to the loan, as part of the arrangement. The legislation could spell out a safe harbor provision setting the standard of care equivalent to an ordinary business loan.