Felon as founder?
Hi, I need your help.
I just discovered that one of the founders of a firm we are forming is a convicted felon. His conviction was for defrauding his investors. He has served his time and is off probation.
What might be the ramifications of his remaining an officer of the firm? Specifically the ramifications of raising startup funds from investors, and when successful, taking it public?
Serious answers please. This guy is good and very creative but made a mistake when he was young.
give him a chance, good luck.
Speaking as someone who raises money from qualified investors for high risk investments for a living:
I’m sure you have thought of this already robodude, but for the benefit of other readers… robodude is going to have to disclose this in his prospectus. It’s definitely a material consideration, and even if you could argue that it is not, imagine defending yourselves against an investor suit in the future, had you not disclosed this prior to the investment.
Okay, so now that you have raised the red flag to prospective investors, how will they proceed? A lot of them will stop reading. For those with whom you have a personal connection, or who have some other reason to continue to pursue the company as an investment, can you demonstrate that this individual is absolutely imperative to having on board. If so, then please explain how your system of checks and balances, and how you will prevent any inside fraud from occurring. Have a one sheet available (don’t volunteer it unless requested) describing the situation in detail, including the outcome to the former felon and to the investors in that situation.
I think you should be more concerned about startup investors than taking it public. When going public there are so many regulators and people from your company and attorneys involved that there is no way someone can re-defraud.
I’d ask your question to the attorney who is drafting the investor docs. He/she would have a lot of experience in this area.
To me that’s a no brainer. I’m surprised he has the ability to deal in securities if he was convicted in the past. You sure he has a real license and did he lie about something to get a new one? You got to be careful who you associate yourself with.