On July 18, 2012, the SEC announced that it entered into a deferred prosecution agreement with the Amish Helping Fund (AHF). AHF was formed in 1995 by a group of Amish elders interested in furthering the Amish way of life. AHF offered and sold securities, the proceeds of which were used to fund mortgage and construction loans to young Amish families in Ohio. The SEC asserted that AHF’s offering memorandum, drafted in 1995, was not updated for 15 years and contained material misrepresentations about the fund and the securities being offered. When the SEC informed AHF of the alleged violations, AHF immediately cooperated, updated its offering memorandum and provided existing investors with a corrected copy of the updated memorandum, offered all existing investors the right of rescission, and retained a certified public accountant to perform ongoing audits, among other things. In its press release, the SEC emphasized that the SEC acknowledged and rewarded AHF’s cooperation.
What lessons can we learn from this enforcement matter? First, that the securities laws apply without regard to the underlying reasons you are seeking to raise money. Even when raising money for a “good cause”, such as helping young Amish families, when selling securities, compliance with applicable securities laws is still critical. Second, offering materials must be reviewed and updated on a regular basis to reflect changes. A company may not simply prepare a disclosure document, and then keep reusing the disclosure document from year to year without reviewing and updating it. Updating is critical to providing accurate and complete information to investors.