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Private Company Fraud

Verity Winship

Vol. 54

December 2020

Page 663

Fewer companies are going public in the United States, but public companies are still the focus of securities law and enforcement. A major exception is that anti-fraud provisions apply to all companies, public or private. Theranos is a prominent example. The Securities and Exchange Commission (“SEC”) sued this private company for securities fraud. This Article examines one societal cost of the decline of public companies: the loss of information needed to detect and punish fraud. It analyzes the SEC’s securities fraud enforcements against private companies and assesses the information costs of moving to an anti-fraud-only regime. It concludes by identifying ways to incentivize information disclosure in the newly private universe of corporations, including a proposal to expand whistleblower protection for employees of private companies.

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