The Securities and Exchange Commission is primarily concerned with public companies and the securities markets in which the shares of public companies trade. However, in a series of recent speeches and presentations as part of what the agency had called the “Silicon Valley Initiative,” the agency made it clear that it is increasingly concerned with private and pre-IPO companies as well, particularly so-called “unicorns” – that is, the private start-up firms with valuations greater than $1 billion. SEC Chairman Mary Jo White highlighted these concerns in a March 31, 2016 speech at the Rock Center for Corporate Governance at Stanford Law School, a copy of which can be found here.
As summarized in an April 4, 2016 memo from the Fenwick & West law firm about the SEC’s Silicon Valley Initiative, “the SEC is closely watching the conduct of private companies as well as emerging platforms that trade in private company securities, and will bring enforcement cases as needed to protect investors.” The agency’s recent presentations and SEC Chair White’s speech, the memo said, underscored that “the SEC expects even private companies to embrace and demonstrate sound corporate governance.”
As discussed below, these pronouncements from the SEC raise troublesome questions about what has in the past been viewed as a clear demarcation between the potential liability exposures for private and public companies.
Continue Reading SEC Warning: It Is Watching Private Companies