What Happens When the SEC Comes Knocking?

Key Concepts: Securities fraud, SEC investigation, legal fees, accounting discrepancies, due diligence.

SEC Investigation and Securities Fraud

The speaker emphasizes the potential dangers of misrepresenting financial information when selling shares of a company. Confusing a potential investor can lead to an investigation by the Securities and Exchange Commission (SEC), resulting in accusations of securities fraud. The speaker vividly describes the experience of being served by the SEC, highlighting the shock and immediate need to gather relevant documentation.

Personal Experience with an SEC Investigation

The speaker recounts a personal experience where the SEC investigated a company they had invested in and promoted on their podcast. The issue stemmed from accounting discrepancies within the company. The speaker stresses that even unintentional errors can trigger an SEC investigation.

Legal Costs and Due Diligence

The speaker underscores the significant financial burden associated with defending against an SEC investigation. They specifically mention hiring an attorney at the exorbitant rate of $1,800 per hour (equivalent to $30 per minute or 50 cents per second). This highlights the importance of thorough due diligence and ensuring accurate accounting practices to avoid potential legal issues. The speaker implies that the lack of perfectly "dialed in" accounting was a key factor in triggering the investigation.

Conclusion

The speaker's anecdote serves as a cautionary tale about the serious consequences of financial misrepresentation and the importance of meticulous accounting practices and due diligence when dealing with securities. The high cost of legal defense further emphasizes the need for proactive measures to prevent SEC scrutiny.