 This podcast is brought to you by LMU Munich. It's a pleasure to be here today, both at this conference and in your beautiful city. I have only been to Germany twice before, and both times I was sitting in airport terminals, so it's nice to see something other than an airline terminal. We're all here today because of the phenomenal growth and expansion of crowdfunding over the last decade. The growth of crowdfunding has been a non-astronomical version of the Big Bang. Ten years ago crowdfunding didn't even exist in the English language. I assume the same is true of the German language. Today it's a multi-billion dollar industry. Now in most countries that growth has been primarily in the non-investment segment of crowdfunding, where people contributing money aren't receiving any sort of financial return. Investment crowdfunding has lagged behind that. And in many jurisdictions non-investment types of crowdfunding are essentially unregulated. The usual rules prohibiting fraud and false advertising apply to it, but that's about it. Nothing especially directed towards non-investment crowdfunding. Non-investment crowdfunding has been used by businesses to raise limited amounts of money. But the amount of money that people are willing to contribute as a donation or in return for a t-shirt or some other sort of financial reward is obviously limited. So the real promise of crowdfunding for businesses at least is investment crowdfunding. Investment crowdfunding is a possible solution to what some people have called the small business capital gap. Small businesses, especially startups, have a great deal of difficulty raising capital. The usual sources of small business capital, venture capital funds, angel investors simply aren't meeting the full need. There are a number of reasons for that. I'm not going to go into those today. Investment crowdfunding opens an entirely new capital market for small businesses. It gives businesses access to smaller investors who don't typically get an opportunity to invest in startup businesses. But in many countries, including Germany and the United States, regulatory barriers have slowed investment crowdfunding. Crowdfunding doesn't fit into the existing scheme of securities regulation very well. The problem relates primarily to economies of scale in complying with securities regulation. For a very large offering, say 500 million euros or something like that, the cost of complying with the full prospectus requirements is a manageably small proportion of the offering. But unfortunately securities regulation doesn't scale very well. For smaller offerings, the compliance cost is a much greater proportion of the offering amount. Those smaller offerings won't happen if they have to comply with the full regulatory requirements of securities regulation. So the question is whether we can design a regulatory scheme for crowdfunding that reconciles the twin goals of small business capital formation and investor protection. That trade-off between capital formation and investor protection is one that anyone who's studied securities regulation is familiar with. Obviously one of the primary goals of securities regulation, perhaps the primary goal of securities regulation, is investor protection. But investor protection has cost. Every regulatory requirement imposed on securities offerings to protect investors increases the cost of raising capital. And of course the more you increase the cost of raising capital, the more difficult you make it for small businesses to start up, grow and develop. So whether regulators recognize it explicitly or not, there's a cost-benefit trade-off in securities regulation. Now when I say that, I don't mean you have to calculate a number for the cost and calculate a number for the benefits of the regulation and then use some formula to decide how to regulate. But you do need to think about costs and benefits, at least in a general non-quantitative way. That trade-off between costs and benefits between capital formation and investor protection is especially stark in crowdfunding. The issuers in crowdfunding are mostly small companies raising relatively small amounts of money. The company's least able to bear the cost of regulation. And the investors are mostly small, unsophisticated investors. The investors least able to fend for themselves without regulation. So my topic today is how to design crowdfunding regulation that promotes small business capital formation without unduly sacrificing investor protection. There are three main players in crowdfunding. The issuers selling securities to raise capital, the intermediaries who operate the internet platforms through which those securities are sold, and the investors buying those securities. Any or all of those three groups could be the locus of crowdfunding regulation. I'm going to take those three groups one at a time and talk about the types of regulation we might apply to each of the groups. And I'll start by talking about the possible restrictions on investors, then turn to the issuers and finish by talking about the crowdfunding intermediaries. And in doing that, I'm going to use the United States and Germany as examples and talk about the regulatory choices our two countries have made in their very recent regulation of crowdfunding. Now I want to acknowledge an academic debt that I owe to Lars Klune, Lars Honus, Hornef, excuse me, and Tobias Schilling. They've written an excellent paper on the German Small Investor Protection Act. I have relied heavily on that paper for German law because I know only a few words of German, most of which involve food, and that's not going to be very helpful in talking about crowdfunding. So my thanks for that paper, and then of course any mistakes I make in describing German law are mine and not theirs. Okay, so let's talk about the three parties and starting with investors and the kinds of regulatory limits that you might impose on investors. I'm going to talk about four potential types of regulation. Number one, limits on the types of investors who are allowed to invest in an offering. Two, investor education requirements. Three, limits on the amount of money that each investor may invest. And four, restrictions on the resale of securities purchased through crowdfunding. Okay, first types of investors. One possibility is to limit crowdfunding, only allow institutional investors or sophisticated or wealthy individuals to purchase. Both Germany and the United States, many countries, have exemptions that treat offerings to those types of investors differently. So you don't have to comply with the full prospectus or filing requirements if you're only selling to those investors. And the theory is that those investors are able to protect themselves so they don't need as much regulatory protection. Or to put it another way, if you're trying to protect unsophisticated investors, the best way to protect them completely is not to allow them to participate at all. If you limit crowdfunding to sophisticated or institutional investors, unfortunately, you're not really doing much to expand the sources of small business capital. Exemptions for sale to those investors have been around, been in existence for a long time. Putting it on the internet and calling it crowdfunding is really just a change of location, having online now instead of direct communications. There are marginal gains in allowing internet solicitations and sales to those kinds of sophisticated investors. Issuers can use the internet to find qualified purchasers that they wouldn't find if they had to do it through direct contact. But there's nothing revolutionary in that. If we only allow crowdfunding to qualified investors like that, we're really just slightly expanding what's been going on for decades. That's not going to have a big impact on small business capital formation. So I want to go beyond that and focus on sales to the general public, the crowd in crowdfunding. That's where the real promise is. And then the question becomes, if we do allow sales to everyone, how should we restrict those sales? One possibility is that even if you don't limit the offering to sophisticated investors, you can try to make all investors more sophisticated through investor education requirements. I think that investor education is a good idea in general. All of the research shows that many people don't understand even the simplest financial concepts like the time value of money or the benefits of diversification. Anything we can do to improve their understanding is a good thing. But I'm not sure that the requirements in the US and the German regulations are really going to help much. They both impose what you might call investor education requirements, but in a way that makes a mockery of the word education. In Germany, the only requirement that you might call investor education is essentially just a risk disclosure document. Investors have to read a document. They have to acknowledge that they've read it and that they've understood the disclosure by signing it. But I don't think that signature requirement really adds much value. How many of you have been to an internet site that has a drop-down list of terms and conditions and asked you to acknowledge that you've read it? How many have been to that? Okay, now how many of you have actually read that? I think that's exactly what's going to happen here. Some investors might quickly skim through those disclosures. Most of them are going to ignore it even though they have to sign something that says they've read it. Now the US also has a disclosure requirement very similar to that German requirement, but there's also an additional requirement in the United States regulation. Investors have to complete a questionnaire to demonstrate their understanding of three things. Number one, that there are restrictions on their ability to cancel their investment and get their money back. Two, that it might be difficult to resell the security once they buy it. And then three, that the investment is risky and they shouldn't invest unless they can afford to lose all their money. Now our regulations don't provide much guidance as to the exact format and wording of that questionnaire, but I assume what the crowdfunding platforms are going to do is simply ask leading questions about those three items. For example, the question might be, do you understand that this investment is very risky and you shouldn't invest unless you can afford to lose all your money? Yes or no? If that's the way it works out, there's obviously little real education involved. It's essentially just forcing investors to sign a series of risk acknowledgments rather than a single risk acknowledgment. Now there's some value in that. A series of questions probably forces investors to focus on the information more than a single drop-down signature requirement. And there are wrong answers. If the investor doesn't pay attention, he might have to read it again. So because of that, it's better, but it's still not doing much to educate investors. That doesn't necessarily mean it's a bad idea. You're not going to make those investors sophisticated with requirements like this, but the more people are exposed to information about the risks of investing in small businesses, the greater the likelihood that they will take away at least some understanding of that risk. I think we should require more. What I would envision would be a multi-page online quiz of some sort where each web page would have some brief text followed by a multiple-choice question and then feedback after people answered that question. I would not require investors to pass that test, but that kind of format would at least require them to pay a little more attention to the material and they might learn something. I think that's much better than just handing people or showing people a page of boilerplate disclosures and asking them to sign it. Okay, so that's one requirement, investor education. Another possible requirement applicable to investors is to limit the amount of money that investors may invest. Both the United States and Germany impose investment limits based in part on the assets or income of that particular investor. Now, the actual amounts of those limits and how they're calculated differ a little between the two countries, but the basic idea is the same to limit the investor's risk to a quote acceptable level so that even if the investor loses the entire amount invested, it won't be catastrophic to that investor. Now, some scholars, including a couple of scholars in front of me, have criticized those limits as paternalistic and they argue that investors should be able to decide for themselves how much they can afford to risk. I'm receptive to that argument. I'm a very anti-paternalistic person myself, but it's not a choice between paternalism and no paternalism. It's a choice between two different kinds of paternalism, one of which imposes very high costs on these offerings and one of which imposes relatively low costs on these offerings. All securities regulation is paternalistic. Investment limits are paternalistic, but they do not impose a very high regulatory cost. They're relatively easy to comply with. Mandatory disclosure requirements are also paternalistic. You're assuming people can't decide for themselves what questions to ask and how much information they need before they invest, but extensive disclosure requirements, unlike investment limits, impose a very large regulatory cost. I support investment limits, paternalistic though they may be, as a part of a trade-off to allow us to reduce the other regulatory requirements, particularly the amount of mandatory disclosure. If we minimize the amount that each investor has at risk so that people can afford to lose the money they're investing, we don't have to be as concerned about protecting them from losses and if we're not as concerned about protecting them from losses, we can reduce some of the other more expensive regulatory requirements such as mandatory disclosure. When we replace high-cost paternalism like that with low-cost paternalism like investment limits, we reduce the overall cost of complying with the regulation. That's the theory. When worked out, the United States has both strong investment limits and very expensive disclosure requirements. That defeats the whole purpose of the trade-off. If you're going to have strong disclosure requirements and trust people to understand that disclosure, you might as well trust them to decide how much to invest as well. I don't think the combination of very costly disclosure requirements and investment limits makes any sense at all. If you do decide to have investment limits, there's another question you have to deal with. Should those limits be applied only on a per-offering basis or should they be cumulative across all offerings that the investor invests in? Germany only imposes investment limits on a per-offering basis. Let's assume my limit is 5,000 euros. In Germany, I could invest up to 5,000 in offering number one, up to 5,000 in offering number two, and so on in any number of offerings. There is no overall cumulative cap on the amount I can invest. In the United States, the limits are cumulative, although only on an annual basis. If my limit is 5,000 dollars, the total of all my investments in crowd-funded offerings in any given year cannot exceed 5,000 dollars. Now, I'm really not sure which makes more sense. I think you can make arguments both ways. Obviously, if you're worried about investor risk, the risk that's important is the cumulative one, the total amount invested, not just what you have invested in one particular offering. But a cumulative limit is very costly to enforce. An investor could go to several different crowd-funding platforms, and unless there is some central registry, none of those platforms would know that the investor was over the cumulative limit. The U.S. deals with that issue by allowing the platforms to rely on the investor's self-certification. So an investor says, no, I'm not over the limit, it's okay. Obviously, that makes it easy for investors to skirt the limits and no really sense to have them in the first place. There's also a diversification argument for the German limit, the per-offering rule. We want people to invest in a number of different offerings to diversify and reduce their risk. Applying the limits only on an offering-by-offering basis encourages them to do that. They can diversify in different offerings, don't have to worry about an overall limit on how much they're investing. There's another limit, or I'm sorry, another issue that applies not only with respect to investment limits, but also with respect to the investor education requirements. Should those requirements apply to sophisticated or institutional investors? If the purpose of investment limits is paternalistic, there's no reason to apply those limits to investors who are capable of evaluating the risk for themselves. And if the investors are already sophisticated, the investor education is going to be wasted on them. In the United States, there is another regulation that allows almost completely unregulated internet sales of securities to so-called accredited investors, institutional investors and wealthy individuals. In that other regulation, there are no investment limits, there are no education requirements, and there is no mandatory disclosure. Given that, it seems silly to impose investment limits and investor education requirements on the same people when they're buying in a crowdfunding offering. If they don't need the protection in the other type of offering where there's not even mandatory disclosure, they certainly don't need the protection in crowdfunded offerings where there is disclosure. So I wouldn't apply these requirements to sophisticated investors. I think they're unnecessary. The final possible limit on investors is one that the U.S. adopts and Germany does not. In the U.S., there is a restriction on the resale of crowdfunded securities. With some exceptions, investors who buy a security through crowdfunding can't resell it for a year. Germany doesn't have any restriction like that, and I think you are right. I don't see much point to those resale restrictions. In fact, I think they're anti-investor. All that restriction does is make these investments even less liquid than these small business investments already are, and that adds one additional risk, the risk of illiquidity, to what's already a very risky investment. You're not protecting investors. You're putting them more at risk than they otherwise would be, and because of that, I clearly prefer the German approach here. Okay, so I've talked about the possible regulation of investors. Let me talk now about the possible regulation of issuers, the company's raising money. I'm going to talk about three ways that you might regulate issuers. First, limits on the amount of the offering, two, mandatory disclosure requirements that I've already talked about a little bit, and three, restrictions on their communications, specifically their communications outside of the crowdfunding platform. First, offering amount. Both Germany and the United States limit the size of a crowdfunded offering, two and a half million euros in Germany, one million dollars in the US. We can quibble about what the exact limit should be, but the theory behind those limits, I think, is sound. Crowdfunding offers a source of financing to small companies that can't afford the regulatory requirements of a fully regulated public offering. Providing an exemption from the usual regulation for smaller offerings recognizes that their economies of scale in complying with securities regulation. The full prospectus requirement may be economical for billion-euro offerings by large public companies. It isn't economical for very small companies making very small offerings. The company's likely to use crowdfunding. For them, the regulatory cost is too high in relation to the size of the offering. So if those small offerings have to comply with the full prospectus requirement, they're just not going to happen. Now, what the exact limit ought to be is a matter of judgment, and it depends in part on what the regulatory requirements of the regulation are. The more costly the crowdfunding regulatory requirements, the larger the offering needs to be to make crowdfunding offering viable. If you're regulating very lightly, crowdfunding might be feasible for small offerings. $100,000 or less. But if it costs $50,000 to comply with the regulation, it obviously is not going to be used for $100,000 offerings. The cost of complying with the U.S. regulation is going to be relatively high in relation to the $1 million limit. And because of that, I and other scholars in the U.S. have predicted that the exemption won't be used much unless it's modified. You can do two things to solve that problem. You can either raise the limit, as Germany has, or you can lower the regulatory requirements to make crowdfunding economically feasible for smaller offerings. But combining very costly regulatory requirements with a relatively low limit on the size of the offering won't work. The exemption just won't be used much. Second possible exemption, or regulation that you might apply to issuers, is mandatory disclosure. And disclosure requirements are one of the areas where you face a very significant trade-off between the two goals of promoting capital formation and protecting investors. The entire premise of securities regulation, obviously, is that requiring extensive disclosure benefits investors. It reduces the possibility of fraud. It allows investors to allocate capital more efficiently. No one disputes that crowdfunding investors should be provided with some disclosure. The question is, how much disclosure? For crowdfunding to work, the disclosure requirements need to be simple and they need to be inexpensive. Simple because most crowdfunding issuers will be small, unsophisticated companies. Most of those companies will not be able to afford sophisticated securities lawyers to help them navigate the regulatory requirements. And in fact, my guess is that many of those companies are going to try to sell without much legal assistance at all. If the disclosure requirements are complicated, those companies are going to make mistakes and they're going to face a significant risk of liability because of those mistakes. The mandatory disclosure requirements also need to be inexpensive to comply with. These are small offerings. The higher the regulatory cost, the less feasible the regulation. And disclosure is undoubtedly the biggest cost associated with crowdfunding regulation. Now, the U.S. regulation, unfortunately, doesn't meet either of those two requirements. It's neither simple nor inexpensive. It's expensive. The U.S. regulation does not require as much disclosure as would a full prospectus under our securities regulation, but it's not that much weaker than what's required in a full prospectus. And one of the biggest expense items in the U.S. crowdfunding regulation, for offerings above $500,000, the issuer has to supply audited financial statements. And even for smaller offerings, the issuer has to supply certified financial statements. Many of these small startups don't even have the accounting systems in place to make an audit feasible. And they certainly can't afford to pay tens of thousands of dollars for an audit if they're only raising a few hundred thousand dollars. And then in addition to those requirements, the U.S. also imposes what I call an ongoing penalty on crowdfunding, annual reporting requirements that continue basically in perpetuity as long as those securities are outstanding. That just increases the expense of doing a crowdfunded offering. So they're not inexpensive. The U.S. requirements are also not simple. Some of the disclosure requirements in the U.S. regulation are incredibly complex. They're not something that an unsophisticated entrepreneur could understand. I'm a securities law expert. Some of the disclosure requirements in our regulation would take me quite a lot of time and thought to draft an appropriate response to. And these entrepreneurs are not going to understand what they're required to disclose. Now I understand the motivation to put as much mandatory disclosure as possible into the regulation. The mission of securities regulators is to protect investors and the regulators always think that more disclosure is better. But we have to recognize the tradeoff between disclosure and capital formation. A full prospectus-type disclosure package with all of its complications and expense might provide more protection to investors, but it makes the crowdfunding regulation useless. It's not going to help to provide protection to investors if no offerings are being made. So I think what you have to do is you just have to give investors a full disclosure package and trust them to decide if they know how enough to invest. Yes, there will be some fraud. Yes, some investors will make stupid decisions. But the alternative is completely foreclosing crowdfunding as an option for small businesses to raise capital. And it's worth noting that even when the full prospectus requirement applies, there is still fraud and investors still make stupid decisions. I think the marginally increased risk of fraud and stupid decisions is a price we have to pay to make it easier for small companies to raise money. The cost is worth the benefit. Now, let me talk about the final potential requirement for issuers, and this is another one where the U.S. and Germany differ significantly. Should the issuer be allowed to advertise and communicate with investors outside of the crowdfunding platform? Under the U.S. regulation, almost all communications between issuers and potential investors have to occur on the crowdfunding platform. The issuer can publish a brief notice about the offering, but that notice really just directs people to the website. The German law, on the other hand, at least as I understand it, allows off-platform advertising. Now, on this one, I think the U.S. approach is the better one. The prohibition on off-platform communications is a relatively low-cost way to protect investors from fraud and other wrongful behavior by issuers. For several reasons. First, if communications have to occur on the crowdfunding platform, everything is being filtered through a neutral intermediary that has a strong business incentive to prevent fraud. Second, the prohibition on off-platform communications forces all of the issuer's communications into the public eye. There are no private one-on-one back alley conversations. Fraud is much more difficult when everybody, including regulators, can see what you're saying. And then finally, I'm sure that most of you or at least some of you are familiar with the wisdom of the crowd argument. The idea that a group of people collectively can be smarter than any one of them individually. I don't totally accept that idea as applied to crowdfunding, but if the wisdom of the crowd is going to work, it's only going to work if everything is publicly available to the crowd. And that's only going to happen if everything is channeled through the crowdfunding platform. Okay. Let's talk now about the last of the three parties and what I think is the most important of the three parties involved in crowdfunding transactions. The intermediaries who control the platforms on which the securities are sold. The United States and Germany both require the securities to be sold through an intermediary, but Germany doesn't regulate intermediaries as much as the U.S. does. The German regulation is directed much more towards issuers. The U.S. envisions a stronger role for intermediaries. As I mentioned earlier, first of all, almost all of the communications between issuer and investors have to be funneled through that platform. And the intermediary has a stronger role in enforcing the regulatory requirements. In general, I think that's a good idea. Filtering everything through a neutral, unbiased gatekeeper can help protect investors from fraud or overreaching by the issuer. So I'm going to talk about three types of requirements that you might impose on crowdfunding intermediaries. First, what I would call, for lack of a better word, neutrality requirements. Rules designed to make sure that the intermediary really is a neutral, unbiased party. Second set of requirements I'm going to talk about relate to whether the intermediary should have a role in policing regulatory compliance by the issuer and the investors. For example, should the intermediary have an obligation to make sure investors don't exceed their investment limits. And then the third possibility goes beyond mere compliance with regulatory requirements and asks whether the intermediary should have a due diligence obligation, an obligation to investigate the issuers and the offerings that appear on its platform. Let's talk first about neutrality and the qualifications to be an intermediary. The U.S. regulation includes a number of requirements designed to make sure that the intermediary is a neutral, reputable gatekeeper. First, the intermediary must be a regulated entity. Either a registered securities broker or a new regulatory category that we created just for this called a funding portal, which is basically its only role is to do crowdfunding. Second, there are provisions to disqualify intermediaries who have engaged in fraud or otherwise violated securities law in the past. So we're screening out some of the bad actors. And then finally, neither the intermediary nor anyone associated with the intermediary is allowed to have a financial interest in the issuer or the offering. Now they have financial interest of sorts. They can receive a percentage commission in the offering but they can't own an interest in the company. They can't buy any of the securities being sold. I think all of those requirements are important and they serve investor protection. The stronger and more independent the intermediary is, the more likely it is that the intermediary will take a pro investor view and aggressively police the offerings on its website. Beyond the qualification issue, the second possible regulation is to give crowdfunding intermediaries an enforcement role to make them responsible for the compliance of issuers and investors with the requirements of the regulation. That's a strong part of the U.S. regulation. The intermediaries have an obligation to enforce a number of the regulatory requirements, the limits on how much each investor can invest, the investor education requirements, the limit on the amount of the offering, the requirement that the issuer post the mandatory disclosure and just in general the limits on how the offering is conducted. I think that compliance role is an important one. Crowdfunding intermediaries are in a much better position than either issuers or investors to make sure the regulatory requirements are met. The intermediaries are going to be repeat players. Crowdfunding will be part of their regular business and because of that they're going to be more sophisticated than either the investors or the issuers. They'll have a better understanding of the regulatory requirements and of how the process works. They'll be represented by knowledgeable attorneys. They can structure their procedures to make sure that the other parties, the issuers and investors follow the regulatory requirement. And it's important to realize securities regulators are not going to be able to monitor all of these offerings on a micro level. These small offerings are not going to be a regulatory priority for securities regulators. So it's important that someone else, the intermediary, take an active role in regulatory enforcement. Now the key question I think with respect to intermediaries relates to the third possible regulatory requirement. Whether the intermediary is required to engage in due diligence. In other words, should the intermediary have an obligation to independently investigate each of the offerings on its site to protect against fraud? The compliance role I just talked about is just making sure that all the other parties meet the technical regulatory requirements. File the disclosure document, limit the size of the offering and so on. But should intermediaries have to go beyond those technical compliance issues and investigate to see if the issuers disclosure is accurate? The German regulation imposes no such due diligence requirement. As I said before, Germany requires that there be an intermediary, but it doesn't give them any sort of active enforcement role. The U.S. imposes some investigatory requirements on intermediaries, but it's not really clear exactly how far the intermediary has to go. Now I think in asking the question about what the regulation ought to be, it's important to recognize no matter what the regulation requires, a neutral intermediary has a strong business incentive to protect investors from fraudulent offerings. Intermediaries do not want fraudulent offerings on their platforms. If their crowdfunding platform becomes known for fraud, investors won't come back and they'll lose money. That economic incentive seems to be working fairly well in non-regulated non-investment crowdfunding. The incentive to engage in fraud is essentially the same in non-investment crowdfunding as it is in investment crowdfunding. Cash is cash. Criminals don't care whether they're lying to you about selling securities or lying to you about doing something else. The gain to them is the same. And in spite of that, the incidence of fraud on the major non-investment crowdfunding sites has been relatively low, even though there is no, on those sites, there is no regulatory due diligence requirement. So the business incentives seem to be working for the most part. That experience weakens the rationale for a strong regulatory due diligence requirement for investment crowdfunding. It may not be needed. There's also a cost-based argument against a strong regulatory due diligence requirement. If the regulation requires intermediaries to do a full investigation of every offering, that's going to be enormously expensive. A due diligence cost like that might make sense when we're talking about a 500 million euro public offering and due diligence by underwriters. But it could be excessive when the offering is only for one or two million euros. The cost of due diligence will take up a much larger percentage of those smaller offerings. And in some ways, due diligence will be harder for those smaller offerings than it is for big public companies. In crowdfunding, the issuers will be small companies. Many of them will be start-up companies. And so there will not be a lot of public information available about them. Investigating those companies is going to be more difficult than investigating a big public company. And then finally, I think it's important to recognize that the cost of due diligence will be born by all of the companies doing crowdfunding. Not just those companies actually engaged in fraud. The intermediary will not know which offerings are fraudulent until it actually does the investigation so it will have to investigate every offering. Most of the offerings will not be fraudulent, so a great deal of that due diligence cost will be wasted. And that cost is going to be passed on to issuers or investors making investment crowdfunding more expensive. I think the gain from due diligence, the prevention of fraud in the few cases where the intermediary does find something wrong, might be outweighed by the cost of due diligence which is imposed on every offering. So what do I think is appropriate? I think intermediaries should be required to check the issuer's disclosure just to make sure it's complete. Not a substantive review, but just to make sure every item that is supposed to be there is actually there in the disclosure. That's a relatively low cost regulation. I also think intermediaries should be required to do a quick background check on the issuer and the people managing the issuer just to make sure they have not been involved in any past wrongdoing. The U.S. requires that. It's another relatively inexpensive form of due diligence. But I don't think that intermediaries should have an obligation to conduct a full due diligence investigation for every offering because the cost is too high relative to the low possibility of actually catching any fraud. Now I think intermediaries should be liable to actually participate in the fraud or if they're aware that an offering is fraudulent and they don't shut it down. I think also if they are aware of something that makes them suspicious they ought to have to follow up and investigate further to see if the offering is fraudulent. But absent something that raises suspicion I don't believe intermediaries should have an obligation to investigate every offering. I've now talked about the three participants. The issuer is the intermediaries and investors are the intermediaries. So I think they ought to be regulated. As I've said a couple of times the key is balancing the goal of investor protection against the cost of the regulation. And what you're hoping to do and this is easier to say than to do what you're hoping to do is to get as much investor protection as possible at the lowest cost possible. Because if the cost is excessive investment crowdfunding isn't going to help small businesses. It isn't going to be used. I don't speak about crowdfunding for hours but I doubt that you want to listen to me speak about crowdfunding for hours. And if I try to speak for hours I'm sure somebody down here will come and forcibly remove me from the podium. So I will stop there. If you have any questions or comments my email address is up there. Be happy to talk to you out in the hallway afterwards or whatever. Otherwise thank you very much.