In the annals of securities law, the maxim repeated more than any Geico commercial is: disclosure, disclosure, disclosure.
Just as location is a dominant force in real estate investing, full disclosure of material information that a reasonable investor would be entitled to know before making an investment decision is the bedrock of our federal securities laws. Any company raising money from investors, sending information to shareholders or filing reports with the SEC does so pursuant to rules that have been enunciated in statutes and carved into our court systems’ decisions for many decades:
One reason investors and shareholders are provided with lengthy and detailed reports and SEC filings is that the federal and state securities laws mandate detailed disclosures and then the regulators review disclosures in determining whether or not compliance has occurred. Material omissions can be sanctioned just as heavily as outright false statements. Did the issuing company (or selling shareholder) adequately disclose the material information that an investor would reasonable want to know in forming an opinion with regard to the purchase or sale of the security? If not, liability could ensue based upon sections 11 or 12 of the Securities Act of 1933, under the fraud provisions of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the Martin Act in New York, or under case law decisions that have evolved both under federal and state statutes and through the common law that has become defined through thousands of court decisions.
Any investor would want to know if the CEO/Founder had previously been convicted of fraud or had recently made bad decisions that resulted in the bankruptcy of a prior company. If losing a threatened litigation would material affect the company’s value or chances for success, who would not want to know the details of the litigation in considering a purchase (or sale) of the company’s stock?
That is probably not material, and, therefore, probably not required to be disclosed. But what if the accident occurred because the COO was driving under the influence of a narcotic? And, what if it was his second accident under such circumstances? That would certainly be material; a reasonable investor would want to know what was being done and what was planned for dealing with this type of situation in which it is likely that there will be a serious consequence affecting the company’s management and operations.
Any company raising funds from investors, whether in a private placement, through crowd funding or in a public offering, needs to review all of the material matters and issues that are, or could create, serious risk factors for the company. Disclosure of the material facts helps to insulate the company against future claims from investors, in the event things do not work out as planned. And, investors who are not tolerant of risk are weeded out in the process, which, in the long run, is better for the company and its management.
Key provisions in your contracts, including those relating to indemnification, insurance, and defense, are essential to contract risk management. While sometimes considered “boilerplate,” these provisions play a pivotal role when determining which party is responsible for certain costs and liabilities. They must always be negotiated and drafted carefully. Indemnification Clauses Businesses should never overlook the […]
Portability of estate and gift tax enables a surviving spouse to inherit any unused portion of their deceased spouse’s federal estate and gift tax exemption. So, if one spouse doesn’t utilize their full exemption, the surviving spouse can effectively double their exemption amount with regard to estate tax liability. For married couples, portability offers a […]
Pet Trusts in New Jersey and New York: A Practical Estate Planning Tool
For many of us, pets are more than companions—they are members of the family. Yet they are often overlooked or inadequately provided for when it comes to estate planning. A pet trust offers a legally enforceable way to ensure that your animal continues to receive proper care if you become incapacitated or pass away. As […]
For many New Jersey business owners, a closely held company represents decades of work, financial investment, and personal sacrifice. Trusts in business succession planning are one of the most effective tools for protecting that value, allowing founders to control how and when the business passes to the next generation while reducing the risk of disputes, […]
Read Before You Sign: IT Contract Pitfalls Every NJ Business Should Know
In today’s digital economy, New Jersey businesses of all sizes rely heavily on technology vendors, software providers, cloud platforms, and managed IT services. Whether your company is purchasing software, migrating data to the cloud, engaging a cybersecurity consultant, or entering into a long-term managed services agreement, a careful IT contract review can have significant operational, […]
Non-disclosure agreements (NDAs) remain a critical tool for protecting sensitive business information. However, New York NDA requirements have evolved, and businesses must ensure these agreements are carefully drafted to remain enforceable. In a competitive market like New York City, NDAs are commonly used to protect proprietary information, client relationships, and strategic plans. At the same […]
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