An initial public offering, or IPO, has referred to the first time a
company offers its shares of capital stock to the general public.
Under the federal securities laws, a company may not lawfully offer
or sell shares unless the transaction has been registered with the SEC
or an exemption applies. An important part of this registration
statement is the “prospectus” that will be used by the company to
solicit investors. The prospectus is the offering document describing
the company, the IPO terms and other information that an investor
may use when deciding whether to invest. The prospectus provides
information regarding the terms of the securities being offered as
well as disclosure regarding the company’s business, financial
condition, management, and other matters that are key to deciding
whether the offering is a good investment (SEC.gov | Going Public,
n.d.).
The SEC requires, but cannot guarantee, the accuracy of facts in the
registration statement and prospectus. If an issuer makes a false or
misleading statement in a registration statement, the issuer can be
subject to criminal or civil penalties. The Securities Exchange Act of
1934 regulates security trading. The act requires that certain issuers
file periodic reports with the SEC and also permits the SEC to
monitor securities markets for fraud and market manipulation
(Kubasek et al., 2020).
The current legal issue that may impact the public offering is
Tammy’s filing a claim of sexual discrimination against Fred’s Miracle
Cough Syrup and Fred personally. One of the requirements of the
IPO registration is the disclosure of risk factors. Lingering litigations
has the potential to make it tougher to gain would be investors and
limit the capital needs to expand the business.
There is the option for Fred to pursue a confidential IPO.
The Jumpstart Our Business Startups Act
, or JOBS Act, is a law
intended to encourage funding of small businesses in the United
States by easing many of the country's securities regulations. It
passed with bipartisan support and was signed into law by President
Barack Obama on April 5, 2012. Daniel Taylor, a tenured professor
at the Wharton School wrote “according to recent research an
unintended outcome, pre-IPO firms have used the confidentiality
provision to avoid costly, time-consuming and distracting lawsuits
from competitors, former or current employees, suppliers, customers
and other such non-shareholders” (How Firms Use Pre-IPO
Confidentiality to Fend off Lawsuits, n.d.).
In regard to the criminal fraud conducted by Jane, I do not see this
having a major impact on the public offering because Jane is no
longer employed by the company and financial records will show
Fred’s Miracle Cough Syrup growth improved significantly and
demands from big-box chains nationwide skyrocketed.
Kubasek, N. K., M Neil Browne, Dhooge, L. J., Herron, D. J., &
Barkacs, L. L. (2020). Dynamic business law. Mcgraw-Hill Education.
How Firms Use Pre-IPO Confidentiality to Fend Off Lawsuits. (n.d.).
Knowledge at Wharton. Retrieved April 8, 2022,
from https://knowledge.wharton.upenn.edu/article/firms-use-pre-
ipo-confidentiality-fend-off-lawsuits/
SEC.gov | Going Public. (n.d.). www.sec.gov. Retrieved April 7, 2022,
from https://www.sec.gov/smallbusiness/goingpublic?
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