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The goal of the law was to help startups raise money quickly when they couldn't attract attention from venture capitalists or traditional investors. At the same time, the law eased the SEC's regulatory reach by giving the startups an exemption from filing rules. The rationale was that new businesses in a hurry to raise money would be hampered by having to submit paperwork. That's a change for Congress, which only two years earlier gave the SEC regulatory powers in response to the 2008 crisis. Supporters say investment crowdfunding could be a boon to the economy. More businesses create more jobs and that boosts economic growth. And many of the companies that would benefit are in overlooked areas of the country, such as the Midwest or Southeast, according to Robert Hoskins, who does public relations and marketing for crowdfunding ventures. "It's going to save America's butt," he said. Mat Dellorso runs WealthForge, a company that will serve as an exchange for startup companies to sell their stock online. He's already heard from more than 500 firms in a broad range of fields, including technology, medicine, energy and consumer products. But investor advocates and other critics express concerns that this new arena of investing could be a breeding ground for fraud. While many companies are started by entrepreneurs with good intentions, "there could be some sharks out there as well," said William Beatty, the director of securities in Washington state. "I hope a lot of people don't get hurt," he said in a telephone interview. SEC Commissioner Luis Aguilar said unscrupulous operators could use investment crowdfunding to prey on "vulnerable segments of society." The system could enable "affinity fraud," he said, with promoters appealing to members of ethnic or religious groups to which they portray themselves as belonging.
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