Finding Start Up Investors The Wrong Way: What Can Happen If You Don’t Properly Raise Investor Funds For Your Start Up
When you want to raise investment funding from private or angel investors, you have GOT to do it the right way – or you could end up with both the federal SEC and 50 state securities boards coming after you – like what happened last month in Pennsylvania.
The risk of major penalties to you and your company are just too great to do this wrong. Look at what happened in this one case:
Commission Halts Unregistered Activity
By Semisub, Inc., Curtiss E. Jackson and Joshua M. HellerHarrisburg, PA, 03/21/2008 — To halt the offer and sale of unregistered securities in Pennsylvania, the Pennsylvania Securities Commission issued a Summary Order to Cease and Desist against Semisub, Inc. (Semisub), an entity with an address in Westlake Village, California, Curtiss E. Jackson (Jackson) and Joshua M. Heller (Heller), individuals also with an address in Westlake Village, California. Jackson was Semisub’s chief executive officer and chairman; Heller was a “private equity associate” of Semisub. Semisub was in the business of developing, owning and operating proprietary semi-submersible vessels for the tourism industry and was offering for sale shares of common stock (Stock).
In or about February 2008, Heller telephoned at least one Pennsylvania resident (PA Resident) and offered the Stock for sale. Heller stated that Semisub is looking for investors interested in making “huge” capital gains in the “not so distant future”; that the minimum investment in the Stock is $50,000; that the total offering is $8,000,000; that each share of Stock costs $1.00; that the return is 7 – 10% based on Semisub having one vessel in the water doing business, but once Semisub has four vessels in the water, the return increases to 54%; that Semisub plans to go public; that Heller’s sales commission as a “private equity associate” is around 8% for the sale of the Stock; and the PA Resident would not be expected to do anything else to invest other than to send a check.
In or about February 2008, Heller sent offering materials (Materials) on behalf of Semisub, including a Private Placement Memorandum and a Subscription Agreement, to the PA Resident via overnight mail. The Materials state that Semisub will use investor funds to expand vessel construction and for capital purposes; that Semisub is offering 8,000,000 shares of Stock for a price of $1.00 per share; that Semisub has completed raising approximately $5,800,000 of the $8,000,000 offering to date; and that a 12% rate of return is expected for the Stock during the first year.
In or about February 2008, Heller telephoned the PA Resident and stated that the PA Resident could invest $25,000. The PA Resident had no substantive, pre-existing relationship with Semisub, Jackson, or Heller. The PA Resident was not an accredited investor under Rule 501 of Regulation D, and did not have sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the investment.
The Commission ordered Semisub, Inc., Curtiss E. Jackson and Joshua M. Heller to stop offering and selling the Stock in the Commonwealth of Pennsylvania, in violation of the Pennsylvania Securities Act of 1972, and in particular Sections 201 and 301 thereof.
Any further solicitations or sales made by these respondents in Pennsylvania will constitute violations of the 1972 Act and the Commission’s Orders. Any person who is solicited by or has information about these respondents is asked to immediately notify the Pennsylvania Securities Commission by calling 800-600-0007.
Full details at PA Securities Commission Website
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May 4th, 2010 at 9:53 am
I need to go along with you, excellent points you have crafted for the case.