The passage and implementation of Dodd-Frank has had a profound impact on the markets for all US stocks. Under Dodd-Frank for the first time in the history of the US, a broker became criminally liable for recommending stocks which then decline substantially in price. This has resulted in a boon for large cap stocks and a continuing expansion of their multiples and valuations of these large companies. Conversely, the Dodd-Frank Act has caused a bust for low-priced share and micro-cap companies as well as a continuing contraction of their multiples and valuations. The graph below depicts the performance comparisons for the Royce Price Stock Index from 1995 through 2017

The passage of the Dodd-Frank Act in 2010 was a consequence of the crash of 2008. The origin of the act, which the SEC began to implement in 2012, was expressly for the purpose of preventing another crash like that of 2008.

In an regrettable ironic twist, it will be Dodd-Frank that will be the cause of the next crash since it is the primary contributor to the expansion of the S&P 500’s PE multiple. Dodd-Frank strengthened the SEC’s enforcement powers and for the first time ever added criminal liability for US stock brokers who recommend shares to clients which decline significantly. The resultant dynamic was a mass exodus of the brokers into the wealth management industry.

Many of whom I have shared this information with were shocked to the point of disbelief that a broker for the first time ever could be criminally prosecuted. This link to a law journal delves into Dodd Frank’s criminalizing conduct for the first time.Prior to Dodd-Frank a broker’s liability for recommending an investment gone sour was a civil arbitration proceedings. There was case that I found in a December 2014 law journalwhere a broker and a registered investment advisor were criminally prosecuted for recommending the shares of a small company at a price that “had no relationship to the company’s true worth”. See page 22 of law journal. This is very scary. The market prices for all stocks throughout my 40 year career and up until Dodd-Frank was passed, were based on the future and not on current or pastfinancials. The precedent that has been set, especially for the criminal prosecution of a registered investment advisor who had purchased shares for clients that were valued for a premium over their book value for clients is extremely dangerous. I predict that eventually the public markets, for the shares of all but the biggest companies, will disappear.

To avoid the legal liabilities added by Dodd- Frank, the broker dealers converted their “commissions-per-transaction” stockbrokers into wealth managers to instead sell a “fee-based-on-assets-under-management” product. Diversified portfolios consisting of large cap stocks are immune to criminal prosecution. As a result, when the entire market crashes no one is to blame.

The change in compensation from commissions to fees has propped up the S&P 500. The wealth management industry and its advisors are highly motivated to keep the clients in stocks. The advisors know that when a client converts to bonds the fee is much lower and when into cash, the client can no longer be charged an annual percentage fee based on the assets under management. This, of course, begs the question “is the client best served with this strategy when a neutral party might suggest that a high percentage of the portfolio be in cash or in the bonds of sovereign nations would be wiser or safer?”

The passage of Dodd-Frank was a blessing for the broker dealers in the US. It substantially reduced a broker dealers’ potential liability which they had when their representatives picked their own stocks for their clients to invest. The fee based on “assets under management” model instead of the” commission per transaction” model has resulted in the income streams for the broker dealers becoming much more stable. Please see, “Outlook for the US Wealth Management Industry: “The Most Exciting Time”, January 27, 2015.

With the stockbroker becoming extinct, those companies having low priced shares and small market capitalizations were left to fend for themselves. Any wealth manager who might recommend them or assist them to raise capital could potentially face prison time. The companies and their investors now have to deal with a new scourge. The market for low-priced stocks and small-cap companies is now rife with lenders who provide loans which have extremely toxic anti-dilution clauses and manipulative short sellers who prey on an unsuspecting public.

The only solution for publicly traded companies with market caps of less than $200 million and have less than 2,000 shareholders is to convert from a public to a private company. The conversion from public to private company would enable a small company to raise capital from the crowd under Regulation CF and Regulation A+ of the JOBS Act. Public companies can-not utilize these regulations to raise capital.

Entrepreneurs who are considering to take their small private companies public by merging into a shell should refrain from doing so. Investors should avoid investing into the shares of small public companies and penny stocks like the plague.

Entrepreneurs seeking capital and investors who are looking for substantial returns from investing in small emerging growth companies should instead look to participate in crowdfunding. It’s the future of the capital markets and especially for small emerging growth companies for three primary reasons:

• With the SEC’s lifting of its last remaining crowdfunding ban that had been in place since 1933 anyone who is not affluent can now invest as little as $100 into a startup to make a significant amount. View video below entitled “Risk $100 to potentially make $1 million”.
• Entrepreneurs can raise up to $1 million per year from the crowd under a Title III offering and $50 million per year under a Title IV offering. The shares issued under a Title IV offering are unrestricted.
• StartEngine, a leading regulated crowdfunding platform recently established a secondary market for the shares of private companies with market caps of less than $1 billion.This happening has resulted in the following:

• Capital markets being transformed. See November 17, 2017 article by Michael Markowski entitled “StartEngine’s New Secondary Market Extremely Disruptive to Capital Markets”.
• Crowdfunding now on path to become ubiquitous by 2020.
• StartEngine becoming a first mover and its market cap increasing ten-fold by 2019. See Michael Markowski’s November 17, 2017 article entitled “Shares of StartEngine Poised to Multiply in 2018”.

Even if Dodd-Frank is repealed, the world has forever changed. The successful convictions under the new laws have established a legal precedent that the SEC and government will use to prosecute in the future unless the convictions for those who were convicted under the new laws are overturned. To further the nails into this coffin is the fact that President Trump is a not a stock market guy and his treasury secretary is from Goldman Sachs. Therefore, the probability is low that a Department of Justice under the Trump administration would go so far as to overturn convictions related to shares of small companies.

Mr. Michael Markowski is a 40 year veteran of the securities markets. His conducting a post mortem on Enron enabled him to develop an algorithm to enable him to predict bankruptcies for seemingly healthy public companies. This included his predicting the demise of Lehman, Bear Stearns and Merrill Lynch in his “Winners and Sinners” Equities Magazine column. See “Have Wall Street’s Brokers Been Pigging Out”.

Michael Markowski is currently the startups expert for Trophy Investinga member based-investing community which excels in identifying the shares of startups and early stage companies that have the potential to multiply in price within three to five years after investment.Membership to Trophy Investing is free. Additional information about Mr. Markowski is available at http://www.michaelmarkowski.net/.

StartEngine’s September 2017 launch of its StartEngine Secondary market for the shares of private companies which are valued for less than $1 billion has forever disrupted the capital markets. By the end of 2018, millions of investors will be pouring money into shares of private startup and emerging growth companies. The venture capital industry is now facing serious disruption. By the end of the decade the amount flowing into the private market will dwarf the capital that is provided by investors to public companies with market capitalizations at or below $300 million. By gaining an understanding on how and why this is happening you can put yourself in the position to capitalize.

StartEngine, a leading crowdfunding platform is the first to provide liquidity to the shareholders of small private companies. It’s also the first to enable unaccredited investors or the masses to purchase shares from the shareholders of private companies. For these reasons, StartEngine meets the qualifications of a first mover company. See Wikipedia first mover definition. StartEngine, is thus positioned to get to a market cap of $1 billion by as early as 2019 as compared to its existing market cap of $70 million. See my article “Shares of StartEngine poised to multiply by end of 2018”. View video below entitled “Why ‘First Mover’ companies are poised to receive instant $1 billion valuations” (3 min 50 sec):

The last significant change to the capital markets; the emergence of private market places in 2009 to create liquidity for the shares of the social media companies LinkedIn and Facebook, etc., having valuations in excess of $1 billion was the result of the dotcom bubble bursting in 2000. The decline of the NASDAQ by 80%, from its March 2000 peak to its October 2002 trough, virtually guaranteed that IPOs would never again be used to provide capital to startup and early stage digital or highly scalable companies. From 1996 to 1998, Yahoo, Ebay and Amazon had launched billion dollar IPOs when they were startups. Since then the shareholders of tech companies with valuations of a billion or greater have obtained liquidity from the private market places and their ultra-high net worth accredited investors. A February 2016 article entitled, “Secondary Shops Flooded with Unicorn Sellers”, revealed that the shareholders of unicorn companies were able to sell $47 billion of their shares in 2015, an increase of more than 80% as compared to 2014.

Private company shares purchased through a Title III or Title IV crowdfunding are liquid or sellable and purchasable by accredited and non-accredited investors alike. For a Title III it’s the first year anniversary date of the shares being purchased. Shares purchased through a Title IV offering become immediately liquid or re-sellable the day of purchase.

The ability for any and every investor to utilize StartEngine to sell the shares that they hold in a private company for the first time since 1933 when the SEC was formed regardless of their level of affluence or net worth and without having to utilize a broker, is revolutionary. The shareholders of an emerging growth company no longer have to rely on a specialist at a stock exchange (NYSE) or an over the counter NASDAQ market maker to sell their shares. They can list them for sale on StartEngine. The volatility of the share price of any private emerging growth company which utilizes Title III and IV to raise capital is substantially reduced when compared to the share prices of publicly traded emerging growth companies.

The biggest beef that investors have in investing in publicly held emerging growth companies is share price volatility. Can anyone recall the shares of any small company going straight up after they have been purchased? THEY ALWAYS GO DOWN. The reason why they go down before they go up is because the specialist at the NYSE or the NASDAQ market maker has to MANIPULATE the market in order to make a living. As soon as investors learn that the investments they make in private startup and early stage companies are much less volatile, the money will pour into private emerging growth companies. It’s now only a matter of time.

Due to StartEngine having a first mover advantage in online equity crowdfunding, a digital industry which is projected to become one of the largest industries in the world, it would not be surprising for its market cap to go to a billion or more by as soon as 2018. If StartEngine gets to a billion dollar valuation its share price could potentially be at $40 or above by the end of 2018. This would represent an eight fold increase as compared to the $5.00 price that StartEngine’s unrestricted shares can be purchased for via its Regulation A+ Tier II current offering.

For direct access to purchase the 100 share minimum or more of StartEngine’s current offering click here. A Trophy Investing video entitled, “StartEngine shares have the potential to multiply by 8 times as crowdfunding first mover” is available at www.trophyinvesting.com. For access to Trophy Investing’s ongoing research coverage on StartEngine subscribe to the FREE “Trophy’s Prospects Newsletter”.

Trophy Investing is a member based-investing community which excels in identifying the shares of startups and early stage companies that have the potential to multiply in price within three to five years after investment.

My crash research that I began to conduct in 2016, resulted in my developing an algorithm that I utilized to issue market crash warnings during 2016 when negative interest rates posed great risks to the global economy. See equities.com article “NIRP Crash Indicator Signals Very Reliable for 2016”. Due to the ebbing of negative rates in 2017, after Mr. Trump’s election as President and the unprecedented low stock market and especially currency volatility, the NIRP Crash Indicator was disengaged in March of 2017. See equities.com article “No Longer a Need for NIRP Crash Indicator Signals”. Upon currencies volatility picking up the NIRP Crash Indicator will be re-engaged.Its warnings will be available to Trophy Investing’s members.

Disclaimer.Mr. Markowski’s predictions are frequently ahead of the curve. The September 2007 predictionsthat appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”.His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. In that article “The Carnage for Financials Isn’t Over”he reiterated that share prices for Goldman and Morgan Stanley were too high. By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.

The launch of the StartEngine Secondary market for the shares of private companies valued for between a few million and a billion in October 2017 by StartEngine, a leading U.S. crowdfunding platform was a transformational event for the capital markets. To fully understand the significance of why see my November 17, 2017, article “StartEngine’s new secondary market extremely disruptive to capital markets”. The launch was also the catalyst for the following:

StartEngine gaining a first mover advantage to emerge as the” Ameritrade” of the crowdfunding industry

Equity crowdfunding to begin its drive to becoming a utility and ubiquitous by 2020

The passage of Title III of the JOBS Act in 2016 enabled anyone, regardless of their level of affluence or income, to invest in startup private companies. This has resulted in individuals having opportunities to invest tiny amounts into startups which have the potential to multiply by one hundred fold or more. Click the link to see the video, “Risk $100 to potentially make $1,000,000” which was produced by investing community Trophy Investing.

With the odds of winning through investment in a startup better than those of the lottery; crowdfunding and most especially, startup investing, is poised to explode. Thanks to StartEngine, anyone can now utilize a smart device and a debit or credit card to spend as little as $10 to purchase shares of a startup that can be sold for a quick profit. Startup investing will become more popular than mobile games.

The now-accelerating crowd will be a boon for those startup and early stage companies, including StartEngine, which have been emerging to provide the infrastructure for crowdfunding. To understand how this will unfold, all one has to do is to take a look back at the early days of the web. As it always does, history will repeat itself. Those who invested in the web’s primary infrastructure providers: Amazon, Yahoo and Ebay prior to 2000, when they were still startups, made over 1,000 times on their investments. Another video below entitled, “Crowdfunding Infrastructure Startups provides upsides of 100X” that was also recently produced by Trophy Investing is highly recommended.

My argument is that the demand by the public to participate in online equity crowdfunding has been pent up since 1996, when the web started on its path to ubiquity. That demand was stunted by the SEC which had crowdfunding bans in place from the SEC’s formation in 1933 until May of 2016, when the ban was lifted which had prohibited the public from investing small amounts in startups.

StartEngine, which most recently ranked as the 2^nd largest Regulation CF crowdfunding platform in the US, has a huge advantage in becoming the “Ameritrade” of the online equity crowdfunding industry. The securities related online crowdfunding industry will be among the top four largest digital industries in the world by 2025.

StartEngine’s advantage over all of its competitors is management, management, management; to echo real estate’s tenet. The company is led by its CEO and co-founder Howard Marks. Mr. Marks, who has a degree in Computer Science from the University of Michigan, is considered to be among the key pioneers of the video game industry. He was instrumental in turning around Activision when it was on its death bed in 1991. Marks, the former chairman of Activision, and his partners; including Las Vegas casino magnate, Steve Wynne, rescued the company from insolvency in 1991. Marks also founded another video game company, Acclaim which was acquired by Disney. Howard is uniquely suited to drive online equity crowdfunding to become ubiquitous. The strategy that he is following to develop the products and services for StartEngine’s crowdfunding platform is the same that he utilized to drive video games to become ubiquitous.

Although StartEngine is still a small company, its recent financials and financial ratios demonstrate that its digital business and revenue model is now firing on all cylinders. Key financial metrics for 6 months ended June 30, 2017:

• Revenue increased by 224%
• Operating expenses increased by only 7.5%
• Net Loss declined by 32%
• Gross Margin @ 70%

StartEngine’s operating expenses for its 100% digital model increasing by only 7% as compared to a 224% increase in revenue is telling. Even more importantly, its gross margin increased significantly and to 70%. This is in line with the gross margins of the online brokerage industry. For example, Ameritrade’s most recent gross margin was 74%.

Since StartEngine is now the favorite to become the “Ameritrade” of the online crowdfunding industry, its market capitalization has the potential to get to above $20 billion ten years out in 2027. That would equate to $1100 per share as compared to the $5 price its shares now fetch. In the event that StartEngine does not become the largest, but would instead be among the top three in 2027, its share price could potentially reach $400; if it were to obtain a valuation comparable to E*TRADE.

Due to StartEngine having a first mover advantage in online equity crowdfunding, a digital industry which is projected to become one of the largest industries in the world, it would not be surprising for its market cap to go to a billion or more by as soon as 2018. If StartEngine gets to a billion dollar valuation its share price could potentially be at $40 or above by the end of 2018. This would represent an eight fold increase as compared to the $5.00 price that StartEngine’s unrestricted shares can be purchased for via its current offering.

For direct access to purchase the 100 share minimum or more of StartEngine’s current offering click here. A Trophy Investing video entitled, “StartEngine shares have the potential to multiply by 8 times as crowdfunding first mover” is available at www.trophyinvesting.com. For access to Trophy Investing’s ongoing research coverage on StartEngine subscribe to the FREE “Trophy’s Prospects Newsletter”.

Trophy Investing is a member based-investing community which excels in identifying the shares of startups and early stage companies that have the potential to multiply in price within three to five years after investment.

My crash research that I began to conduct in 2016, resulted in my developing an algorithm that I utilized to issue market crash warnings during 2016 when negative interest rates posed great risks to the global economy. See equities.com article “NIRP Crash Indicator Signals Very Reliable for 2016”. Due to the ebbing of negative rates in 2017, after Mr. Trump’s election as President and the unprecedented low stock market and especially currency volatility, the NIRP Crash Indicator was disengaged in March of 2017. See equities.com article “No Longer a Need for NIRP Crash Indicator Signals”. Upon currencies volatility picking up the NIRP Crash Indicator will be re-engaged.Its warnings will be available to Trophy Investing’s members.

Disclaimer.Mr. Markowski’s predictions are frequently ahead of the curve. The September 2007 predictionsthat appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”.His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. In that article “The Carnage for Financials Isn’t Over”he reiterated that share prices for Goldman and Morgan Stanley were too high. By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.