Under the Securities Exchange Act of 1934, Fred's Miracle Cough Syrup will need to
file a registration statement with the SEC which will need to include the following
information:
1. Description of securities offered for sale
2. explanation of how proceeds from the sale of securities will be used
3. description of business and properties
4. information about the management of the company
5. description of any pending lawsuits in which the registrant is involved
6. financial statements certified by an independent public accountant
Fred's+Miracle Cough Syrup faces three potential legal and regulatory issues. In
relation to the registration, they face two potential issues. The first potential
regulatory/legal issue is the lawsuit brought forth by the employee Tammy. Tammy filed
the suit claiming that there was sexual discrimination when Fred and Sally chose Ted over
her. The Equal Employment Opportunity Commission, enforces the Civil Rights Act title
VII which prohibits and employer from treating you differently, or less favorably, because
of your sex and also prohibits decisions based on stereotypes about abilities and traits
based on gender.+Tammy will need to prove that she was more qualified than Ted for the
position. Investors must be made aware of the ongoing litigation which may be a deterrent
for them to invest as it is a current liability. Nonetheless, the SEC requires that this
information be disclosed to protect the potential investors and their interest in the business.
The second regulatory issue is the company must make sure the are in compliance with
a GAAP and GAAS requirements. Based on Jane’s “cooking of the books”, there is
potential for material misstatement which Fred and Sally need to be cognizant of. Fred and
Sally must make sure that they have remedied and appropriately addressed all material
misstatements made by Jane and that their books reflect accurate depictions of the
companies’ profits. The SEC may take administrative and injunctive action or recommend
criminal prosecution for any violation made in regards to the 1933 act. Due to the fact that
Fred and Sally are aware of the misstatements made by Jane, they may therefore be held
liable due to negligence and falsifying information on the registration statement.
Lastly, Janes prior misconduct raises concern for potential legal/regulatory issues. Due
to the fact that she is still an employee and is related to owners and other employees of
Fred's Miracle Cough Syrup, she is considered an insider under Section 10(B) and Rule
10b-5. If any employee shares any material information before it becomes public, with an
outsider they will be in violation. Examples of material information that would be relevant
to Fred’s Miracle Cough Syrup would be a change in litigation against the company, a new
product, process or discovery, and significant change in the financial status of the
company. Jane has been known in the past for her fraudulent and criminal behavior, if she
is to obtain information that would be considered insider information and share with
bookie Don to allow him to make a profit, she would be in violation of the 1934 act.
+Reference:
Kubasek, N. K., Browne, M. N., Dhooge, L. J., Herron, D. J., & Barkacs, L.,
(2020).+Dynamic Business Law(Fifth). McGraw-Hill Connect.
Sex discrimination. U.S. Equal Employment Opportunity Commission. Available at:
https://www.eeoc.gov/youth/sex-discrimination#:~:text=Title%20VII%20of%20the
%20Civil,sexual%20orientation%2C%20and%20gender%20identity. [Accessed
April 7, 2022].
