General Business Law

Neogenix Oncology: A Good Case Study on Securities Law (Non)Compliance by a High Growth Company – Part 3: When the Genie Can’t Be Put Back in the Bottle

In my previous posts, I described the events leading up to the Chapter 11 bankruptcy and supervised asset sale of Neogenix Oncology. To recap, Neogenix’s payment of fees to unregistered “finders” to raise money in some of its earlier rounds of financing called into question the company’s compliance with federal and state securities laws. Under such laws, just about any arrangement in which someone is paid a contingent or variable fee to raise capital for a company is prohibited, unless that person is registered as a broker-dealer or is a registered representative of a broker-dealer. After the SEC commenced an investigation into Neogenix’s practices, the company’s accountants concluded that potential investor lawsuits and/or governmental enforcement actions could give rise to large contingent liabilities on the company’s balance sheet. This uncertainty led to Neogenix being unable to raise further funds, necessitating the company’s bankruptcy filing. In this post, I’ll explore the likely reason why Neogenix had to take the drastic step of filing for bankruptcy to cure its securities violations. [Read more…]

Stock Options versus Stock Warrants – What’s the Difference?

I frequently hear clients and some of their advisers talk about “stock options” and “stock warrants” and there is often considerable confusion between the two. In this post, I’ll briefly describe the major distinctions between these instruments and how each can be used in a privately held company. [Read more…]

Neogenix Oncology: A Good Case Study on Securities Law (Non)Compliance by a High Growth Company – Part 2: What Neogenix Did

In my previous post, I described the events leading up to the Chapter 11 bankruptcy and supervised asset sale of Neogenix Oncology. To recap, Neogenix’s use of unregistered “finders” in some of its earlier rounds of financing called into question the company’s compliance with federal and state securities laws. After the SEC commenced an investigation, Neogenix’s accountants concluded that potential investor rescission rights could give rise to large contingent liabilities on the company’s balance sheet. This uncertainty led to Neogenix being unable to raise further funds, necessitating the company’s bankruptcy filing. In this post, I’ll explore how exactly Neogenix violated securities laws and the lessons this case study provides to startups and other growth stage companies. [Read more…]

Neogenix Oncology: A Good Case Study on Securities Law (Non)Compliance by a High Growth Company – Part 1: How It All Happened

In the past, I have written about the importance of entrepreneurs and startups complying with federal and state securities laws when raising capital for their businesses. The consequences for failing to do so can be significant. The business owner risks civil and potentially criminal charges. In addition, he could also face potential lawsuits from disgruntled investors. But one consequence that is frequently overlooked is the possibility that the mere presence of securities law violations can deter future investors, choking off needed infusions of capital. No one wants to invest in a company that has potential fines and lawsuits waiting in the wings. [Read more…]

Limited Liability Examined: Part 2 – When starting a new business, should you set up a corporation or LLC, or is purchasing insurance enough?

This post is the second in a series examining limited liability in the context of a new business. Previously, in the first post of this series, I provided a general overview of the different sources of liability, namely contract and tort liability. In this post, I’ll discuss the effectiveness of using entities providing limited liability protection (like corporations, LLCs, and limited partnerships), and discuss whether insurance may be sufficient liability protection in the context of a new business or whether an entity is needed.

Many lawyers seem to recommend a limited liability entity for any business venture. On the other hand, insurance professionals and CPAs often suggest that obtaining insurance may be enough. So who’s right? As I so often find myself saying with these types of questions, the answer depends on the specifics of the business involved. And in this case, there really is no definitive answer. [Read more…]