About that Barron's Article

Barron’s this week reported that a well-known player in reverse mergers and his lawyer, among others, are under investigation by federal prosecutors. There are very strong allegations in there. Our industry newsletters also have reported about this, in which the lawyer denies any wrongdoing.

I comment on this only because pretty much everyone in the industry is already aware. The problem is, the mere announcement of an investigation into people that some considered prominent in our business does real damage to the credibility we all have, regardless of whether in the end any wrongdoing occurred. When we try to get the SEC to ease some regulatory burdens, they will point to this and say, “See? This is why we need tight regulation.” When we try to explain to venture capital and private equity firms that they should start looking at IPO alternatives for their portfolio companies, one Google search turns up this nastiness.

I am a strong believer in presuming innocence, and I do so in this case. In fact, there are no charges here, no one has been indicted, many investigations go nowhere with no case being brought. It is interesting to wonder how Barron’s found out about what is presumably confidential information. In any event, this is not like what really looked very black-and-white in the Madoff case (which is probably one reason he has already pled guilty). I had a client dragged out of his house in handcuffs one day at 6am, charged with securities fraud. Two years and gazillions of dollars of legal fees later, the prosecutors unceremoniously dropped all charges. The problem: where do you go to get your good name back after that?

My hope is that our industry is not brought down by an appearance that it remains the playground of criminals, because it does not. At the same time, where criminals do lurk, the light should be shone on them and at a minimum they should pick up their marbles (sorry keeping the playground metaphor) and choose another sandlot.

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