Assume you are raising money, not really paying attention to posts like those in this series, and you generally solicit investors when you should not. Who cares?
Over the next three short posts we’ll tell you three groups that do.
1) Financial regulators. The SEC and FINRA keep a close eye on issuers of securities; that’s their job. If you mess up the rules, they should notice – and if they do the investigation process can be significant and the penalties if you have violated the rules can be worse.
This page on the SEC website contains dozens of litigation actions that resulted from investigations by the SEC.
Not all of these are because of general solicitation violations, of course, but there are plenty of those in there. General solicitation is an area of particular focus for the SEC, because it goes to the heart of their mission of preventing inappropriate transactions. When the JOBS Act was being discussed, the SEC was definitively and publicly against permitting general solicitation: “general solicitation and advertising can all too readily become a tool for deception and misinformation.” It remains a focus and where, they say, there is zero tolerance for violations.
Suspected violations result in investigations (outlined here). The SEC has strong investigative and subpoena powers, and can pursue remedies – both administrative actions (presided over by an administrative law judge – so an SEC judge judging an SEC case!) or civil actions (from which the accused can end up in jail). We’ll review the penalties in more depth in the next post, but for now let’s just say they can be substantial – even existential.