Issuers contemplating a capital raise using the new exemptions from registration made available in the JOBS Act must be aware that with freedom comes responsibility. From a compliance perspective, of the various changes to the offering process made available to all issuers by the JOBS Act, the new ability of issuers to advertise private and crowd-funded securities offerings is the most profound change to the federal securities laws in many years. It may prove to be a perilous opportunity for uninformed issuers.

The temptation for issuers is their new legal ability to communicate easily and instantly with a huge quantity of potential investors worldwide with a mouse click. With this temptation comes the trap that electronic communications cannot be recalled once transmitted, and with that comes the peril that a virally disseminated public misstatement can subject the issuer to fraud liability simultaneously in almost every country.

Issuers now more than ever need to exercise self-restraint before communicating. While the JOBS Act granted a little liberty in issuer communications, Congress left intact every issuers’ fraud liability and criminal prosecution exposure. Companies accused of any kind of wrongdoing quickly become the subjects of class action lawsuits or direct actions by investors against management. SEC enforcement actions typically result in a an order to pay the U.S. Treasury the approximate dollar amount of all funds raised, a civil penalty judgment, prejudgment interest at the IRS’ underpayment rate, and an a lifetime bar from serving as an officer and director of a public company. Federal criminal actions can result in 25 year jail sentences for offenses involving public companies. State attorneys general are also out there, and generally they have to prove only that your communication was negligently made to establish criminal liability. Such threats to life and property are among the unadvertised costs and consequences facing the hapless corporate manager accused of securities fraud.

The Achilles’ heel of every company is its communications. These include, but are not limited to text messages, social media postings, emails, video press releases, and phone calls. Communications also include formal communications such as private offering memoranda and offering circulars. The risks always are that the information communicated is somehow incomplete, misleading, or false. With the JOBS Act there will be less formal communications that are required to be reviewed by regulators. Therefore, issuers may have a false sense of security about the need to have an effective communications compliance process. Indeed, the need for an issuer to have a communications compliance procedure may be more important than ever.

Compliance starts at the top of the organization. Management must adopt a culture of compliance and institute procedures to restrict who can communicate, about what, and how. For the newborn nanocap company, dedicating preciously scarce financial resources to compliance will seem unnecessary. But weighed against the destruction that can be caused to life and property by the government or disgruntled investors, modest expenditure in compliance training and communications review will be a good investment.

Where do I start? Good compliance starts with management buying into the idea it cannot afford poor communications. Assess all the ways that the company and its employees communicate with the outside world. Know who communicates about what and make sure they are trained in what they can and cannot say and write. Consider whether certain types of communications should always be previewed by legal counsel before release. For an actual capital raise, do not make any communication about the offer or the securities offered without first having cleared the proposed communication with skilled legal counsel. Skilled legal assistance should always be obtained to ensure that offering memoranda are compliant with the appropriate registration exemption and discloses all material facts about your business and the securities offered. The costs of a good compliance regime should be a regular budget item just like liability insurance. As with most things in life, you get what you pay for from securities lawyers and compliance specialists.

Compliance is really about self-preservation. It is also about peace of mind. As a fiduciary to your investors, you have a responsibility to protect the company and corporate assets. You certainly would not put yourself at unreasonable risk. Given the risks of doing things incorrectly, if you are contemplating seeking funds from the public, and you are not willing to address and mitigate the risks of doing so imperfectly, you and your company are probably are not ready to be public.