Venture Capitalists With Powerful Blogs May Run Afoul of the SEC(betabeat.com)
betabeat.com
Venture Capitalists With Powerful Blogs May Run Afoul of the SEC
http://www.betabeat.com/2011/09/14/venture-capitalists-with-powerful-blogs-may-run-afoul-of-the-sec/
5 comments
I'd be interested in seeing how fraud applies in the event that investors are talking about their investments in private companies. For example, it's not uncommon for you to see an investor to say something like, "I like the businesses in space XYZ and the ABC business model...and that's why I invested in company LMN". In this instance, I don't see an overt statement that is fraudulent...even in the event that the company pivots away from any of the above points.
I have heard investors say, "I'm not in deal ABC, but I could have been / wish I was, because now those guys are killing it." Is that fraud? While that type of talk can excite people to act, if the investor isn't involved...idk. Oftentimes, the common public perception a company is 'killing it' is neither news (to the general tech public), nor is it always true (lots of companies appear to be killing it, but are running out of cash.).
Another scenario is when a VC talks publicly about an investment they are in, in conjunction with details about how the company is performing. I can't recall ever hearing this type of talk, though I'm sure it does exist. In these cases, I'd suspect, as long as the company isn't about to go public, fraud would still be questionable. If this type of information was used to persuade other institutional investors, who conduct their own diligence, I'm not sure the statements hold much meaning. With private investments, which are not usually liquid, and investors are selected...it's akin to Goldman making the argument that their clients are professional investors and therefore responsible to make their own investment decisions. However, with the introduction of Second Market, this might not be the case. In the event that private stock acts like public stock, forward looking statements (either positive or negative) that move the market could have a fraudulent effect.
The whole situation is unclear, especially considering the rare IPO and Second Market effect, VCs can really only defraud professional investors / acquirers. In those cases, I'm not sure their words have much of an affect. However, VCs could potential make statements and sell stock on 2nd market.
It'll be interesting to see how it all works out and whether or not Second Market will be able to trade private company stock in the future.
I have heard investors say, "I'm not in deal ABC, but I could have been / wish I was, because now those guys are killing it." Is that fraud? While that type of talk can excite people to act, if the investor isn't involved...idk. Oftentimes, the common public perception a company is 'killing it' is neither news (to the general tech public), nor is it always true (lots of companies appear to be killing it, but are running out of cash.).
Another scenario is when a VC talks publicly about an investment they are in, in conjunction with details about how the company is performing. I can't recall ever hearing this type of talk, though I'm sure it does exist. In these cases, I'd suspect, as long as the company isn't about to go public, fraud would still be questionable. If this type of information was used to persuade other institutional investors, who conduct their own diligence, I'm not sure the statements hold much meaning. With private investments, which are not usually liquid, and investors are selected...it's akin to Goldman making the argument that their clients are professional investors and therefore responsible to make their own investment decisions. However, with the introduction of Second Market, this might not be the case. In the event that private stock acts like public stock, forward looking statements (either positive or negative) that move the market could have a fraudulent effect.
The whole situation is unclear, especially considering the rare IPO and Second Market effect, VCs can really only defraud professional investors / acquirers. In those cases, I'm not sure their words have much of an affect. However, VCs could potential make statements and sell stock on 2nd market.
It'll be interesting to see how it all works out and whether or not Second Market will be able to trade private company stock in the future.
Does this apply to folks with personal blogs like Fred Wilson and Mark Suster or just big corporate blogs like TechCrunch and GigaOm?
Mr. Ferrara explained, “When an investor or insider is engaged in an omission which proves to be a deception, and the result of that was a financial loss to another investor, a case for fraud can be made.”
That applies to any investor or insider, regardless of where they speak publicly. So, it applies to Fred Wilson, Mike Arrington, and any other investor.
That applies to any investor or insider, regardless of where they speak publicly. So, it applies to Fred Wilson, Mike Arrington, and any other investor.
So Fred Wilson and co. are fine as long as they do not "deceive"? I suppose that still exposes them to the possibility that they might have to defend themselves to prove that they have not "deceived"? Ah, the perils of the internet age. I wonder if general liability insurance policies cover those types of claims?
Personal blogs like Fred Wilson's and Mark Suster's are less hype driven and more content driven. A TON of their content is geared towards providing the startup community and aspiring entrepreneurs with valuable information. Their content is derived from their personal experiences - the companies they invest in, advise and have created themselves - and this is why reading them is valuable. They never claim to be or are never perceived to be neutral news sources.
Blogs like TechCrunch and GigaOm are more journalistic in nature - their goals and the public's perception of them is as a news source. There are certain responsibilities and standards that need to be upheld when you are a source of news that don't apply to personal blogs.
Blogs like TechCrunch and GigaOm are more journalistic in nature - their goals and the public's perception of them is as a news source. There are certain responsibilities and standards that need to be upheld when you are a source of news that don't apply to personal blogs.
Here is the reg on public companies:
http://en.wikipedia.org/wiki/Regulation_Fair_Disclosure
For privately held companies there is no equivalent afaik.
Especially critical is the time of transition from a privately held company to a public one (IPO). And that's good stuff. The basic idea is that everybody has access to all the information at the same time.
The big issue would be if a blog or some other communication wrote 'you should buy this stock' knowing it is a lemon and unloading by someone with a hand in the creation of the blog.
That's why it is good practice to fully disclose that you have a position in the companies you write about, because if you do not it may be that afterwards, long after you thought it mattered you could still be hit with a violation depending on what he stock did after you published.
http://en.wikipedia.org/wiki/Regulation_Fair_Disclosure
For privately held companies there is no equivalent afaik.
Especially critical is the time of transition from a privately held company to a public one (IPO). And that's good stuff. The basic idea is that everybody has access to all the information at the same time.
The big issue would be if a blog or some other communication wrote 'you should buy this stock' knowing it is a lemon and unloading by someone with a hand in the creation of the blog.
That's why it is good practice to fully disclose that you have a position in the companies you write about, because if you do not it may be that afterwards, long after you thought it mattered you could still be hit with a violation depending on what he stock did after you published.
It should apply to either, especially if they're using the blog to get more investors.
So is it a problem that Fred Wilson blogged for months about Kickstarter before revealing that he was an investor?
I'm not a lawyer or an SEC examiner, but I think securities fraud requires an overt fradulent claim, not simply the omission of potential benefit. Had Wilson been pimping Kickstarter as a profitable company (rather than merely a really cool idea) then it might be fraud.
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This really applies to anyone engaged in communication about a company in which they have a financial interest, doesn't it? If you take language like:
When an investor or insider is engaged in an omission which proves to be a deception, and the result of that was a financial loss to another investor, a case for fraud can be made.
As stated, at least, that seems like it would also apply to founders' blogs, or even founders' posts on HN.
When an investor or insider is engaged in an omission which proves to be a deception, and the result of that was a financial loss to another investor, a case for fraud can be made.
As stated, at least, that seems like it would also apply to founders' blogs, or even founders' posts on HN.
No, it is not just about your interests, it is about whether you can be construed as giving investment advice, which is a very grey area, eg see http://handbook.reuters.com/index.php/Personal_investments_b...
The ironic part is that many of these VCs actually voted the people into power who are now turning on them.
I wonder if Fred Wilson and Marc Andreessen have buyer's remorse today. These SEC appointees didn't fall from the sky, they came from this administration.
http://www.avc.com/a_vc/2008/11/barack-hussein.html
I wonder if Fred Wilson and Marc Andreessen have buyer's remorse today. These SEC appointees didn't fall from the sky, they came from this administration.
http://www.avc.com/a_vc/2008/11/barack-hussein.html
A world class management team. I remember the first debate
I ever watched Obama participate in. He was asked whether
he was a "strong operatating executive." He replied that
he was not "the COO", that he was more like "the CEO". And
then he went on to talk about surrounding yourself with
the best people you can find and then letting them do
their job. He did that with his campaign which was a
masterful thing to watch, he did that with his VP pick (in
stark contrast to the Palin fiasco), and I expect he'll
build a killer cabinet and a killer administration (look
for some picks from across the aisle).
Marc Andreessen: We asked him directly, how concerned should we be that you
haven’t had meaningful experience as an executive — as a
manager and leader of people?
He said, watch how I run my campaign — you’ll see my
leadership skills in action.
...
He’s got my vote.I think everyone wanted to believe in Obama and they were finding reasons. I'm not sure why they did given how much support he received from the banking industry. The reason he won was because the bankers preferred him over McCain and gave him dump trucks full of money. It's easy to see why so far. Basically we've had to give the bankers foot massages because a slap on the wrist would have been too mean for their tender hearts to handle. I'm not arguing McCain would have been much better but on this kind of nonsense he definitely would have been better.
And of course Obama doesn't know anything about the market and certainly does not believe in the free market to do anything. His latest jobs program should make that painfully obvious to anyone paying attention. The notion of the technocrat appeals to people who are smart and like solving problems. They feel like any problem can be solved with a good enough team and a smart leader (as an aside why does anyone believe Obama to be anything but an average intellect). That is as FA Hayek put it a fatal conceit but it's easy to see why people fall into it. I said the same thing about Mark Cuban's comical jobs program: top down thinking is toxic to your brain.
And of course Obama doesn't know anything about the market and certainly does not believe in the free market to do anything. His latest jobs program should make that painfully obvious to anyone paying attention. The notion of the technocrat appeals to people who are smart and like solving problems. They feel like any problem can be solved with a good enough team and a smart leader (as an aside why does anyone believe Obama to be anything but an average intellect). That is as FA Hayek put it a fatal conceit but it's easy to see why people fall into it. I said the same thing about Mark Cuban's comical jobs program: top down thinking is toxic to your brain.
I don't think this political rant belongs here.
Yeah in retrospect you are probably right. I meant in response to the people who supported Obama are getting what they asked for (without knowing it).
Nowhere in the article is an investigation mentioned or even inferred.
That said, it is probably good policy not to write about any companies that you have an active stake in, especially while transactions are in progress.
The people involved in public companies all have been 'read their rights' on this stuff and know full well the consequences of breaking the rules.