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Seeking new investors can be a hazard for securities fraud

| Aug 7, 2020 | Securities Litigation

When you have a new business idea, you may be ready to hit the ground running. To do so, however, you will need capital – perhaps more capital than any one source will provide. Private investors can open doors for Florida entrepreneurs and businesses.

However, you could entangle yourself in a serious legal issue unless you take the proper precautions when seeking funding. How you represent your business or idea could risk allegations of securities fraud.

Dishonesty usually causes more problems than solutions

Because your reason to seek capital is genuine, it is important to avoid tactics that ingenuine scammers or fraudulent business owners often use when soliciting investments. Whether through lying directly or by omission, you could end up in a difficult situation.

The Securities and Exchange Commission (SEC) recently charged a business owner with fraud related to misrepresenting their success. According to the SEC press release, the founder told investors that the company had a more extensive network of clients than it did. In addition, the founder led investors to believe that its revenue far exceeded its actual revenue. Now, the founder faces serious criminal and civil fraud charges.

Beware your own optimism

Business owners and entrepreneurs who have a deep passion for their ideas are bound to be optimistic about bringing those ideas to fruition. Whether your idea is a new product, business model or service offering, you may believe you are holding the key that unlocks an innovative force in the market.

Unfortunately, optimism can lead to inadvertently overestimating a financial boon. When investors are involved in getting an idea off the ground, claiming future success can be misleading. Respect that the investor is making a complicated decision that could affect their own income.

Therefore, it can be helpful to work with a legal professional outside of your business to help you avoid the pitfalls of both intentional and accidental misrepresentation. If a dispute arises, your attorney can assess whether the information you provided to investors accurately represented the current standing of your business and fairly forecasted future potential.