Slinde Nelson

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Slinde Nelson

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Slinde Nelson

Private corporate owners and investment fraud allegations

On Behalf of | Apr 11, 2022 | Business Litigation

The U.S. Securities Exchange Commission exempts private corporations from registering their securities. Private companies offering stocks to accredited investors may be exempt under Regulation A, as noted on SEC.gov.

Under Regulation D, private corporations may remain exempt from registration when offering stocks totaling no more than $10 million. A private company may, however, offer more shares after a one-year period. Regardless of exemptions, Oregon’s statutes require companies to disclose material information to potential investors.

Required disclosures and common fraud allegations

Business owners must provide investors with financial statements prepared using generally accepted accounting principles. The Oregon Secretary of State website notes that private companies must also disclose facts about their officers. Investors must receive information about a business’s purposes and management capabilities. Companies must, in addition, explain the reasoning behind their fundraising; investors have a right to know what the company intends to accomplish with their money.

Potential investors may inquire about the risks of losing their capital. According to Oregon.gov, common frauds include promising investors high or “guaranteed” returns. Fraud may also involve marketing unproven technology or promoting real estate without a deed.

When investors may allege corporate owners of fraud

As noted by CHRON.com, corporate owners owe a fiduciary duty to protect a company’s assets. If, after supplying capital, investors discover asset mismanagement, they may raise fraud allegations.

When alleging misconduct, investors generally need to show proof of a breach of fiduciary duty. Evidence such as concealing mistakes or falsifying financial records could reveal an officer’s misconduct. Investors may also allege management failed to pay bills or misrepresented products or services.

When investors have reason to believe a company’s ownership breached a duty of care, they may file a legal action for relief. Damages may include compensating investors for their losses. The company’s ownership could also face a court order to correct the associated issues.