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Is it legal to lie to investors about your business concept?

On Behalf of | Sep 20, 2022 | Criminal law

You have an incredible idea. You know that if you can get the right technology and patents in place, your idea will to a very lucrative business. You may need financial support from outside investors to take your concept and turn it into a functional business.

Actually securing funding for your idea could be a bigger challenge than you anticipate. Many business investors want to see prototypes or sale records before they provide capital for a new business venture. You need to overcome their hesitance to get the funds you require.

It may seem perfectly natural and even appropriate to exaggerate your company’s current position and make promises that reflect your expectations but not the company’s current operations. Is there any risk involved in telling investors what they need to hear so that they will help support your business?

It is illegal to lie to investors and financial institutions

Whether you pitch your business concept to a private investment club made up of a group of retired friends or you solicit funds from a bank, you have an obligation to provide accurate information about your company’s operations, your patents and other important information.

Misrepresenting what you intend to do or what you are currently capable of doing could lead to allegations that you defrauded the investors. Although many people recognize that it is illegal to lie on loan applications, fewer people seem to understand that even promises made to prospective investors could be a violation of the law.

Lying to investors could lead to federal prosecution

Some people lie to investors and misrepresent their company’s circumstances without consequence. They are able to provide the returns that investors expect and therefore avoid the scrutiny that might come with a failed business venture.

There is never a guarantee that your idea will generate the profit you anticipate, and investors need to know the risks, not just the benefits possible in the best-case scenario. Sometimes, it is confusion or misunderstandings on the part of investors that lead to unrealistic expectations. A careful review of your communications with investors could be a good starting point if you hope to fight back against allegations of fraud.

Educating yourself about what leads to white-collar criminal charges could help you avoid or better manage accusations.