Non-Compliance Report - The Secret to Avoiding Non-Compliance (Do not read this secret if you enjoy being on the SEC’s Bad Actors list)

In the past, we have mentioned how important it is to stay compliant with SEC federal law. We feel it is so important that we started this business specifically to help companies stay and remain compliant with the SEC’s regulations on solicited private equity otherwise known as Rule 506(c). Without sounding like a broken record we would like to remind our readers of the ever so dangerous risks of noncompliance by this cautionary tale based on a recent SEC press release. Read all the way to the end if you would like to know one of the best exemptions available to avoid the pitfalls of non-compliance.

The SEC charged a group of individuals and an issuer with fraud. The fraud scheme sold over 2,000,000 USD worth of unregistered shares. The funds were collected using two different crowdfunding campaigns. The website where the funds were conducted is also getting charged including its CEO. Sadly the funds were raised with practically no transparency whatsoever. Not only did the fund hide one of their manager’s criminal histories, but they also used raised funds for individual private purposes rather than what the fund advertised and disclosed.

Fraud akin to the above example is all too prevalent. Just look at the SEC press releases for the last month. 15 out of 22 articles are announcements that they have charged a company with some type of financial fraud or crime. Mistakes either intentional or accidental can cost you your reputation, money, or even freedom as jail is sometimes a possibility. Staying compliant with the SEC in the financial industry should be each participant’s number one priority.

This sad and terrifying situation is the exact reason why the SEC created the accredited investor definition. In order to protect investors from fraudulent funds such as this one. If someone devotes their life savings into an investment like this, their lives would be ruined. Someone who has a combination of wealth and financial acumen could potentially weather this storm.

Additionally, Issuers need to take stories like this to heart and be as honest as possible with their investors and take advantage of private equity exemptions such as Rule 506(c) or 506(b).

Be sure to follow our blog for updates on the financial industry and check out the SEC press release page if you need a sobering reminder of the need for compliance.