Most people envision stocks and bonds when thinking of securities. However, partnership interests, options, warrants, agreements to invest, and other investment arrangements all involve securities. Any person who offers or sells any type of security must comply with the securities laws and regulations of the federal government and the state where the transaction is taking place. At a minimum, therefore, sellers of securities must comply with at least two separate sets of laws, i.e., the federal law and the law of the state in which the securities are offered and sold.
Venture Capital (VC) is financial capital provided to young, often high-potential but high-risk, companies, typically at their startup. Venture capitalists are those who invest in these types of businesses. They make their money by owning equity in the companies in which they invest. Venture capital investments are regulated as other security investments. Many of the laws pertaining to venture capitalism are found at the federal level and are administered by the Securities and Exchange Commission (SEC).
Mainly, United States securities laws are enforced through both civil and criminal actions. On the civil side, the SEC has broad investigative powers and can bring civil enforcement actions seeking monetary penalties, injunctions, bars against serving as a director or officer, and other civil remedies. While the SEC does not have the power to bring criminal actions, they frequently refer investigations that uncover criminal violations of the federal securities laws to the Department of Justice and the United States Attorneys offices. If you receive a subpoena from the SEC to appear to give testimony or to provide documents, be aware that the statements or documents that you give them can be later used against you in a criminal action.
The DOJ may charge several types of crimes in bringing charges for violations of the federal securities laws. Some of these crimes are securities-specific criminal offenses, which only apply to violations of the securities laws such as the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. The DOJ also prosecutes more general criminal offenses, such as mail fraud, wire fraud, conspiracy, and retaliation against whistleblowers.
A seller of securities or a VC entrepreneur must be very cautious when making offerings. The implications for failure to comply with the securities laws are severe. Noncompliance may result in federal and state securities administrators imposing civil, and possibly criminal, penalties. Of course, failure to comply can also result in civil lawsuits from one's investors seeking damages and a return of the invested money.
In most commercial transactions, the rule of thumb is "buyer beware." Quite to the contrary, under securities laws, the rule of thumb is that the "seller should beware." The fundamental difference between securities transactions and commercial transactions should never be forgotten by entrepreneurs considering selling securities.
If you or someone you know is being investigated for securities violations or has been issued a subpoena by the SEC, Attorney General, or United States Attorney, it is crucial to speak with an experienced Manhattan or Brooklyn criminal defense attorney who has experience in securities violations, securities fraud, insider trading and white collar defense. Please call Aidala & Bertuna P.C. for a consultation.
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