I must admit, I laughed a little reading the case scenario…. Poor Don getting struck by lightning
and finding enlightenment; priceless!
Based on what we have learned and know from the scenario I would advise Fred and Sally to
hold off on taking Fred’s Miracle Cough Syrup public for a couple of reasons.
First, when an IPO is registered with the Securities and Exchange Commission, it is the job of
the SEC to protect investors by enforcing our nation’s securities laws, as well as overseeing and
ensuring that investors of securities markets and firms are treated fairly and honestly. In doing
so, the SEC has stringent requirements that must be met for a private company to go public.
Jane’s embezzlement and the lack of ensuring that all financial transactions met GAAP and
GAAS standards, would certainly be a red flag to anyone investing in a company. If they can’t
handle the books of a small potato’s operation, what could happen when millions are flowing
through the company?
Next, let’s chat about Tammy. a Tammy presents an even bigger problem with her accusations of
sexual discrimination. Under Title VII of the Civil Rights Act of 1964, employers are prohibited
from discriminating based on race, age, color, sex, religion, and national orientation. Tammy
would have to provide hard evidence that she was discriminated against and that she was the
more qualified person for the position. Had she been given the role; she still is not a CPA (or
that we know of) and with the family history of “Sticky Fingers Jane” the company would not
want to make another mistake in who they hire to run their financials.
Next, there is a possibility that even unintentionally, the family could be charged with insider
trading or tipper/tippee shenanigans. What if Sally’s best friend – Bob’s wife says she wants to
invest in “her friends” to show them support once they go public after Sally tells her the plan
to do so. Could this be considered insider trading?
Finally, there is potential for great risk for the product and its potential sales knowing that
good ole’ Bob was able to reverse engineer the product and put it out online for the public to
see.
All these factors create potential liability and risk for any investors. I think many would agree,
that it may be best for Fred and Sally to wait until they have fully vetted all these issues before
going public.
References:
Kubasek, N. K., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. L. (2019).
Dynamic Business Law. McGraw Hill .
Title VII of the Civil Rights Act of 1964. U.S. Equal Employment Opportunity
Commission. (n.d.). Retrieved April 7, 2022, from
https://www.eeoc.gov/statutes/title-vii-civil-rights-act-
1964#:~:text=Title%20VII%20prohibits%20employment%20discrimination,Rights%
20Act%20of%201991%20(Pub.
