Private Company Compliance: Investigations, Regulations, and Litigation

In the world of emerging private companies, what is the role of the compliance function, and why should directors care?

Ever since former US Securities and Exchange Commissioner Mary Jo White announced the Silicon Valley Initiative, we have seen the enforcement division moving into the private company sphere. Major compliance and governance failures, such as Theranos, FTX, and IRL, have put the spotlight on what is communicated internally and externally in employee, customer, and investor communications. In fiscal year 2022, the US Securities and Exchange Commission (SEC) launched 760 total enforcement actions, including hundreds of stand-alone, follow on, and individual actions running the gamut from failures of conduct to “first-of-their-kind” to cases charging trading securities law violations. Money ordered in SEC actions comprised over $6 billion, almost doubling the prior year amount.

What is the role of the compliance function in the pre-initial public offering company, and who owns it, how do you get started, and when do you start deploying resources? When the government or a plaintiff comes knocking on the door, what is the role of directors in managing the response?

Check out the NACD annual private company board practices and oversight survey report. Findings highlight boardroom insights on topics like AI and ESG from 218 private company directors.

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