The FDA has a Task Force with focus on companies subject to FDA regulation/clearances.  It should be remembered that while the SEC regulates, and monitors disclosure by, public companies, much of what they do also covers private enterprises which raise capital, including early-stage med-tech and bio companies.  The focus of SEC activity is to prevent misstatements and over-statements made to new investors or (for public companies) into the public marketplace.

Many investigations arise by reason of inaccuracies in materials utilized by emerging companies in private fund-raising, whether for stock offerings or other “securities” such as SAFEs and Convertible Notes.  These misstatements can arise in connection with oral presentations, offering “decks,” private placement memoranda or other written material. This includes articles or studies prepared by third parties, based on misstatements or exaggerations made by companies and which are repeated by third party sources.  Companies offering securities of any sort need to centralize and review disclosures of all types by all personnel; which  includes scientists and researchers who may not be attuned to the impact and scope of the laws concerning sale of securities.

The types of typical misstatements often relate to a misstatement of the science, the status and success of trials, the existence and scope of customer base, failure to clarify that certain “sales” are really beta tests, and particularly ambiguous or misleading statements concerning company status vis-a-vis FDA guidance or approval.

While one might expect that most complaints come from ultimately dissatisfied investors and arise many months (or years) later, overly enthused senior management should note that very often the SEC is “tipped” by inside whistleblowers who are uncomfortable with what is being said about the company offerings which seem excessive to scientific employees who are finely attuned to the granular accuracy of data concerning the science.

Having company disclosure substantively reviewed by outside counsel prior to its use is an excellent way, absent actual intent to defraud, to protect against an SEC criminal action based on material misstatement; the SEC may well take civil action and also cause corrective disclosure or a rescission offer to investors, but such is far more palatable than a criminal charge.

Finally, and this relates to public companies, the SEC focuses on trading upon material non-public information, whether through formal trading programs (so-called 10b5-1 plans or otherwise), and trading in shares of companies other than one’s own company based on insights obtained (by example) by reason of inter-company collaboration or trade group disclosures.

With so much funding going into med-tech of all sizes, it is not surprising that the SEC has a specific Task Force in this vertical, and companies should be aware of the particular SEC focus  which does not make different rules for med-tech but does create heightened scrutiny.