That's a valid point, but if you think about what it's like to raise money, do you really want to be in the position of establishing --- to a prosecutor's satisfaction, since being dragged into court for this is game-over --- that you were unaware of the materiality of these distinctions when you improperly made them to potential investors?
From model jury instructions, which might be misleading here: the "intent" a prosecutor needs to establish is that you knowingly said something false, in the process of seeking something of value, that the falsehood was material to the decision of whether to give the thing of value to you, and that the other party later gave you that thing.
The bigger issue is it's very very very very very unlikely that a tiny startup is going to be prosecuted for attempting to defraud an accredited investor.
I agree, but there is also the civil aspect, and while its exceedingly unlikely that this would become a criminal matter, the civil liability could be substantial...
I don't think it's even negligence. When you are a startup, you are not required to file official SEC disclosures or anything of the sort. So you can use whatever you want as your terminology. Having said that, it's a really bad idea to use misleading terminology, because any sophisticated investor will know it and will consider you full of shit anyway
while its true that you may not have to file disclosures with the SEC, do not kid yourself, the second you discuss a potential investment in your company with someone you have to conform to both federal (sec) and state securities laws...
well, that's why startups talk to qualified investors who essentially sign something that says they are aware of all the risks of losing money, etc - not to general public. The point isn't the laws, the point is bullshitting sophisticated investors is a losing strategy
That is incorrect and somewhat ironic in a post about using correct terminology
Sure. I'm just saying it doesn't detract from the underlying point. But you're right, it is ironic and slightly amusing... Just goes to show, we're all susceptible to making silly mistakes when we step outside of our primary domain(s).
But you can still get in legal hot water, and getting (mostly) back out involves having to prove that you were ignorant of the rules rather than deliberately trying to deceive. It's still going to be an incredible mess, and it's still going to wreck your reputation.
Agree with you here. Although negligence comes with it's own set of rules which may/may-not apply given what he mentioned in the post. I too found this ironically funny to call it fraud. Further for the sake of argument, not all fraud is criminal, so not all fraud convictions are felonies.
Strictly speaking, negligence has its own 4-part test (duty, breach, causation, damages). Fraud (intentional misrepresentation made to be relied on by another to their detriment) without intent (or reliance) is simply an unactionable misrepresentation.
This is incorrect. Fraud requires intent. Otherwise it's just negligence.
Should probably throw a legal dictionary in with the financial one.