Not Too Small to Fail. Why Even Small Businesses Need to Be Aware of SEC Regulations

  • November 2nd, 2015
  • Russell Weigel
  • Comments Off on Not Too Small to Fail. Why Even Small Businesses Need to Be Aware of SEC Regulations

There are a lot of reasons why a small or medium-size business may be unaware of the SEC and state restrictions involving investor solicitations. When news headlines feature only the failures of massive corporations, it is easy to convince oneself that the SEC or state securities regulators have bigger problems to worry about than a start-up company in a Pennsylvania suburb or a mom-and-pop shop in Des Moines. Likewise, there are so many instances of illegal investor solicitations seemingly going unnoticed that it may appear safe in assuming that you too can get away with taking some shortcuts. In reality though, the SEC and state investigators have every right to investigate investor solicitations no matter how small or innocuous you may think they are. And in reality, even unintentional capital raise regulatory compliance failures can have major legal and practical consequences.


Every aspect of the investor solicitation process is regulated: who you can make offers to, how you can make those offers, the location of offers, the type of investors. The list goes on. A breach of any of these seemingly small details can result in legal action, including criminal and civil proceedings. Your investors could sue you for failing to provide them with sufficient information. The SEC could sue you for disgorgement or bar your officers from accepting executive positions in the future. The bottom line is that a securities compliance failure is illegal and can result in lawsuits, fines, and even jail time.


SEC proceedings involving you or your company can have dire consequences for you outside of court as well. Being associated with an SEC investigation can mean the end of your online or community reputation. Media publication of your name while reporting on a suit may mean that your name is forever tied to the word “fraud” in the Google search bar. Banks will know this information and use it to reject loan applications or even accelerate payments due on outstanding loans, while potential employers will hesitate to hire someone with a toxic reputation. This can result in extreme financial and personal distress.


No matter how small or large your business may be, you need to educate yourself on SEC regulations. The SEC is designed to protect investors, not those businesses seeking to raise capital. That leaves it up to you as the business owner to find resources and counsel that can steer you in the right direction. As you can see, failure to do so may have far-reaching consequences. Don’t risk getting caught up in such a situation because you did not know better or knew better but thought it was not as big a deal as it is.

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