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What is inadequate disclosure?

On Behalf of | Mar 16, 2023 | Fraud

If you are trying to get people to invest in your business, you will want to paint a positive picture of the company’s performance to date (if it is already up and running) and its future prospects.

Walking into a meeting room and saying, “Hi, I’ve got a company that has been making a steady profit but is about to lose its main client” does not make for a great pitch. Nor does “Hi, our projections show this idea could make millions, but only if the dollar doubles against the yen and the number of people turning vegan rises by 300% in a year.”

Hence, you might be tempted to omit some of the information you share to make things sound more positive. But, you’ll need to be careful not to withhold too much important information or your situation could get complicated – in the worst possible ways – very quickly.

Omitting too much could put you behind bars

Fast forward a few years, and your investors are unhappy with your performance. They believe you did not tell them the whole truth and ask the authorities to investigate. If the authorities believe you hid important details that you should have shared, you could face criminal proceedings.

So how can you know how much you should disclose?

You will want to follow the guidelines laid out by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Financial Accounting Standards Board (FASB) and so forth.

With that said, knowing precisely how much to disclose is not always obvious, especially because these guidelines are complex and sometimes subjective. As a result, it’s wise to get legal help if you are unsure of where you stand. Otherwise, you may need to fight fraud charges because someone feels you did not disclose enough and they have suffered as a result.