According to FINRA, StartEngine Capital was fined $350,000 for posting false or misleading communications on its crowdfunding portal website and failing to reasonably supervise issuer-prepared content.

Between November 2016 and January 2018, StartEngine included issuer communications on its funding portal website that it knew or had reason to know were false or misleading. The portal also posted its own inaccurate counts of the number of investors in offerings on its portal and failed to reasonably supervise potentially misleading issuer-prepared content.

One particularly egregious example involved an issuer whose product was a home robot. The issuer exaggerated the robot's level of functionality in a demonstration video posted on the StartEngine website. The video depicted the robot independently performing various tasks including waking sleeping family members, teaching a child piano and art, projecting a recipe onto a cutting board, patrolling a home for intruders, adjusting a thermostat, and playing peek-a-boo with a child.

During the offering, StartEngine received information that caused it to know or had reason to know that these claims were exaggerated and misleading, but it failed to correct them. Although a disclaimer on the offering page noted that the robot was a work-in-progress, it was insufficient to remediate the misleading content. A generic disclaimer cannot cure specific false or misleading statements, particularly when they are presented in a compelling video format that suggests the robot's capabilities are real and functional.

Funding portals have a gatekeeping role in crowdfunding offerings. While they cannot provide investment advice or recommendations, they must ensure that communications on their platforms are not false or misleading. When portals know or have reason to know that issuer materials are misleading, they have an obligation to require corrections or remove the materials.

The false investor count information is also concerning because social proof, the number of other investors participating, can significantly influence investment decisions. When portals inflate investor counts, they may induce additional investments based on false information about the offering's popularity.

For investors, this case illustrates the risks of relying on information presented on crowdfunding portals. Even videos and demonstrations may not accurately represent a product's current capabilities. Investors should carefully read all disclaimers, be skeptical of claims that seem too good to be true, and understand that early-stage products often have significant development remaining before they achieve demonstrated functionality.