… expressing concern about the low levels of compliance among many of the early companies.

Ryan Feit left behind his lucrative career at a private equity firm and opened his crowdfunding site, SeedInvest. The opportunity came with the 2012 Jumpstart Our Business Start-ups, or Jobs Act – which opened the door to new methods of crowdfunding, promoted as a new way to lower the regulatory barriers that have prevented companies from raising money from ordinary people.

However, what the 33-year old graduate of Penn’s Wharton Business School experienced over the last 2 years has dented his enthusiasm for the this ‘revolutionary financing machine’. Feit’s site has turned away dozens of companies that wanted to raise money from investors on his site. And some of those companies presented what Feit viewed as clear red flags for investors. Nevertheless, they later showed up on other crowdfunding sites, where they have raised hundreds of thousands of dollars from unsophisticated investors. One of the early companies he rejected was shut down by regulators. It was labeled a fraud after it raised $5 million from investors.

“I’m legitimately concerned that a lot of people are going to be losing money,” Mr. Feit said. “Investing in start-ups is really risky, and it’s very different than buying a used couch. We definitely do not think you should treat it like Craigslist.”

While there have been success stories, advocates of crowdfunding have been expressing concern about the low levels of compliance among many of the early companies that have raised money and the bad terms the companies have offered investors.

“Even though a lot of people want to come to the party early, they may ruin the market if the market gets a reputation for being one where people don’t comply with the rules,” said. “There are certain issuers who are definitely engaging in practices that I would consider to be dangerous to a vibrant market.”

CROWDCHECK.   Joan MacLeod Heminway, a law professor at the University of Tennessee, has been working with a company called CrowdCheck on a survey of compliance in the industry. CrowdCheck has found that almost none of the companies that have been listed so far are fully in compliance with even the basic rules set down by the SEC.

About 40% of all companies, for example, did not get their financial results audited or certified, as is required by the rules, CrowdCheck found. The lower regulatory barriers for crowdfunding mean that the SEC does not individually check whether companies are following the requirements.

Chris Tyrrell, the chairman of a crowdfunding industry group, the Crowdfund Intermediary Regulatory Advocates, along with Mr. Feit, have been pushing for a set of standards that crowdfunding sites will use when vetting companies seeking to raise funds.

Perhaps regulators will begin paying some attention. Although in the "pro business" environment of the new administration, that's not very likely.