On Monday, the SEC filed an amended complaint against four former executives of Outcome Health, a private healthcare advertising company, alleging fraud in connection with the raising of nearly half a billion dollars. The Complaint provides that the alleged fraudulent business practices came about as a result of the executives trying to solve what they called "the chicken and egg problem." According to the SEC, the problem that Outcome faced was similar to a problem that many start-ups face: "Outcome needed advertising revenue to pay for the recruitment of doctors' offices and installation of thousands of TVs and other viewing devices. The reverse was also true: Outcome needed a large, functioning network of doctors' offices with installed devices so it could sell ad campaigns to generate revenue."

Finding solutions to these early stage questions are, of course, critical to the success of any business. According to the SEC, Outcome's solution involved inflated projections and manipulated data that gave the false impression that estimated data was, in fact, actual performance. While such fraudulent activity is ill-advised in any business transaction, when done in connection with a capital raise it also opens up the individual founders and executives to civil and criminal prosecution. The best way to avoid this result is to engage securities counsel in your start-up plans as early in the process as possible.