A privately-held benefits consulting firm agreed to pay a $450,000 fine, and its former CEO agreed to pay over $500,000, for failing to disclose compliance failures during fundraising. The SEC maintains that the firm evaded state insurance licensing laws by rigging online examination courses and allowing employees to sell insurance without required licenses. The SEC charges that the firm violated the securities laws by failing to disclose the compliance failures when raising money from institutional investors during at least 3 financing rounds that raised over $500 Million. The related stock purchase agreements included false representations that the company complied with applicable laws including licensing requirements. The respondent has also faced regulatory actions by at least 40 states who have imposed more than $11 Million in sanctions. As part of the SEC settlement, the company created a Chief Compliance Officer position.
OUR TAKE: Be very careful when claiming compliance with applicable laws in disclosure or fundraising documents. You might want to ask your Chief Compliance Officer if any issues require more disclosure. The SEC can use holes in your regulatory compliance as a predicate to an enforcement action for securities fraud.