What to Promise Investors and What to Keep to Yourself If You Want to Stay Out of Court
Promoting your business to investors could land you in court if you run afoul of the detailed and complicated California and federal laws surrounding sale of securities. This post focuses on California advertising and fraud liability related to promises to investors. However, a large number of federal laws and regulations also apply to some transactions.
In California, you cannot make false or misleading statements of material fact or advertisements to investors about securities, or omit information that is necessary to make your statements not misleading, if you knew or had reasonable grounds to believe the statements were false or misleading, in order to induce a securities purchase or sale. California Corporations Code § 25400(d). California Corporations Code § 25302.
Further, substantially assisting or inducing someone to violate many of these portions of the Corporations Code can result in legal liability. California Corporations Code § 25303. The same goes for altering or destroying records to cover up false or misleading statements. California Corporations Code § 25304.
Where many promoters run into trouble is “misleading” statements as to “material facts”. There is a fine line between fact-based statements about the investment opportunity and overstatements of potential return that omit information a prudent investor would consider when deciding whether to purchase the investment. What constitutes a “material fact”, a “security”, or a false or misleading statement have been subject to considerable litigation, both in California and federal court.
Investment promotion and securities laws are complicated, and the results of violating them can be severe. Protect yourself and your business by seeking out an experienced business attorney. Michael Leonard, Esq., of San Diego Corporate Law, named a “Rising Star” for 2017 by SuperLawyers, has the experience and the insight to resolve securities-related issues or prevent them before they arise. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.