Crowdfunding and the Greatest Investment Opportunity EVER!!!

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By Jonathan Weil

There was a surprise in store last week for anyone reading the comment letters on the Securities and Exchange Commission's website about upcoming regulations related to crowdfunding: a real-life advertisement soliciting suckers (excuse me, investors) for a company trying to raise money through crowdfunding.

The SEC removed the document from its website on Friday. The person who had posted it was identified on the SEC's website as Daniel E. Nelson, chairman of a Florida-based company called Rocketjet, which claims to be developing something called the "water atomic engine."

The SEC is developing new regulations on crowdfunding in response to legislation enacted earlier this month that relaxes investor-protection rules in the name of making it easier for companies to raise capital from individual investors. Critics have said the new law, which Congress dubbed the Jumpstart Our Business Startups Act, is an invitation for investment scams.

Excerpts from Rocketjet's pitch: "Make 100 times your investment in 1-to-3 years and 1,000 times by holding for 3-to-10 years by ending the Energy Industry and starting a Free Energy Era with economy-changing proprietary advancements."

What will this Free Energy Era look like? "Cars will run on straight freshwater or seawater; electricity will be free; boats and ships will run on flotation water for fuel; and planes will fly in and out of space with only water for fuel," the letter reads. "This is an energy advancement that enables the most significant improvement in national and global economic conditions in the history of civilization."

The document referred readers to a Rocketjet website, which estimates the market value of the company's engine and related products "is in excess of $1 trillion." That would be almost twice the size of Apple Inc.'s stock market value.

One reader who saw the pitch before the SEC took it down was Barbara Roper, director of investor protection for the Consumer Federation of America. "I was clicking through each file and opened that one up and just couldn't believe it," said Roper, who was a vocal opponent of the crowdfunding legislation. "It is the perfect illustration of what's wrong with the JOBS Act."

Nelson couldn't be reached for comment, and no one answered the phone at the number listed on Rocketjet's website. An SEC spokesman, John Nester, said the investment pitch "did not meet our posting requirements and should not have been included."

The agency did allow a shorter comment letter from Nelson to remain on its website. Nelson wrote: "Please do not make regulations which require that startup companies must in any way be dependent on qualified investors, business angels, venture capitalists, established interests or any others who may have sunk investment in existing technologies or businesses."

(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)

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-0- Apr/24/2012 13:18 GMT