Securities Compliance: Different Ways of Failing

There are certain traps in securities compliance that I see businesses falling into. First of all, the fact that there is no appropriate record keeping can get the business in trouble. So it’s clear that you need to keep records of all the securities-related documents.

The second area is: issues are with the CEOs, CFOs, other officers and directors. It’s when they give investment advice to prospective investors. I say stay away from that. Have a third party handle that. Or have your counsel review any given offerings to prospective investors.

The third area is the prospectuses and marketing materials. These are attempting to request investment. You have to be very careful with those. And you have to make sure that they’re identified as that, marketing materials. And you have to specify that they are not intended to be an accurate or true statement.

The famous phrase in securities is, “past performance doesn’t guarantee future results.” I like to remind my clients of this all the time when they’re preparing marketing materials.

Also, it’s critical to keep a prospective investor well informed. Those are the three big areas that are dangerous for businesses. Especially when they’re seeking to raise more capital.

Enforcement Agencies

Beyond the FCC, there are other agencies that are responsible for regulation and compliance with securities laws. There are state-level agencies. They are responsible for that category of governance and regulation. Also, a plaintiff can bring private causes of action in court. Or they can bring arbitration proceedings.

Securities Compliance

Generally speaking, the FCC and their state counterparts are good about enforcing laws. Unfortunately, they don’t have unlimited resources. There’s only so much they can tackle at a given time.

I would characterize the FCC and the companion state agencies as your first line of defense. They are the first in enforcing securities laws. They ensure compliance with securities laws. Then the private action is the second line of defense. It relates to bringing claims against an offender of a securities law violation.

Becoming a Public Traded Company

Becoming public to me is the biggest elephant in the room. It affects changes in the way publicly-traded companies follow securities laws. That is something that is significant. This is because it has had ramifications on private companies, as well, who are looking to go public one day.

Changing a company’s status is very complex. There’s a lot that goes into it. There’s a lot of minutiae. And you would need appropriate legal counsel to assist. They can help with counsel you if your private company was considering going public. This is because you need to consider a bunch of components in that regard.