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. a 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?msclkid=09036963
b6c311ecb1d47a6d59aeaeb2
