Your Pitch Deck Was Reviewed by VCs. Then by the SEC and DOJ.
- Steven Barge-Siever, Esq.
- 5 days ago
- 6 min read
Updated: 1 day ago
By Steven Barge-Siever, Esq. CEO | Upward Risk Management
May 23, 2025
The Legal Line Between Hype and Fraud
Startups are told to “sell the vision.” But when that vision crosses into fabrication, it’s not just risky - it’s criminal.
This week, the SEC charged Jeremy Jordan-Jones, CEO of Amalgam Capital Ventures, with securities fraud after allegedly soliciting a $500,000 investment based on false statements in a pitch deck and diligence materials. The DOJ filed criminal charges the same day.
The allegations included:
A product that didn’t exist
Revenue partnerships that weren’t real
A bank account in the red
Over $100,000 of investor funds used for personal expenses
These weren’t exaggerations. They were material misstatements - false claims likely to influence an investor’s decision. And that’s exactly what regulators care about.
The Legal Standard: Material Misstatements vs. Optimism
Under U.S. securities law, a material misstatement is any false or misleading statement of fact that a reasonable investor would consider important when deciding whether to invest. In this case, those statements were made in a pitch deck and due diligence packet - the same types of materials routinely shared in early-stage fundraising.
The SEC’s complaint alleges that:
Amalgam’s blockchain platform did not exist
The partnerships and revenue projections were fictitious
The company’s financial condition was misstated
Investor funds were misused almost immediately
None of this occurred in public filings. These were private fundraising materials - meaning the case sends a clear signal: the SEC is scrutinizing investor communications at every stage of the startup lifecycle.
When Vision Becomes Violation: Legal Risk in Startup Fundraising Norms
In the startup world, exaggeration is not just tolerated - it's expected.
When I put together my first pitch deck, I projected a $100 million valuation within a few years.A mentor looked at it and said: “Make it a billion - or no one will take you seriously.” The logic? Everyone’s exaggerating. If you don’t, investors will assume your real number is $10 million.
Pitch decks are aspirational. Product roadmaps stretch the truth. Future revenue is cast as current momentum. Founders call it vision.
But regulators may call it fraud when the claims cross a certain line.
What makes the Amalgam case so dangerous is how ordinary the behavior looks through a startup lens:
Claiming a product exists when it’s still in development
Listing revenue partnerships that haven’t actually signed a binding agreement
Projecting financials that assume deals will close
Referring to “AI” or “blockchain capabilities” that don’t function yet (AI Washing)
Glossing over cash runway in the appendix
Calling internal tools “platforms” to imply more traction than exists
These tactics are common across early-stage decks - especially in hot markets. They’re used to attract funding, outshine competitors, and hit artificial milestones before the next round. But they also expose founders and boards to material misstatement claims under Rule 10b-5 and Section 17 of the Securities Act.
And it’s not just civil exposure. As we saw in this case, the DOJ will step in when they believe the conduct shows intent.
Legal Reality Check: This Would Never Fly in Any Other Investment World
Take the Amalgam fact pattern: a $500,000 investment secured through exaggerated claims about product readiness, fake revenue, and misused funds.
Now remove the word startup from the equation.
In any other investment context, the legal consequences would likely be immediate and severe.
In private equity, general partners have a fiduciary duty to their limited partners - not just to deploy capital, but to exercise diligence, skepticism, and oversight. If a PE firm invested based on knowingly inflated materials, LPs would sue for breach of fiduciary duty, citing a failure of care and prudence under well-established agency law.
In hedge funds, investment managers are held to a best interest standard and face clawbacks, removal, and regulatory penalties for misjudging (or ignoring) material risk in portfolio construction.
In public markets, materially false statements made in connection with a securities offering are routinely litigated under Rule 10b-5 or Section 11 of the Securities Act. Plaintiffs don’t need to prove intent - just materiality and reliance.
But in venture capital?
It’s often brushed off as founder exuberance. “That’s just how early-stage fundraising works.” “No one takes a pitch deck literally.” “Everyone’s inflating numbers.”
This tolerance has created a legal and regulatory blind spot - one where materials that function as securities offerings are treated like marketing collateral by those reviewing them. But regulators, courts, and insurance carriers increasingly disagree.
Startups use materials that resemble offering documents. VCs treat them like storytelling. Regulators treat them like evidence.
And maybe this explains something else too: Private equity GPL coverage routinely costs 2–3x more than venture GPL. Not because the fiduciary duty is higher - because the claims actually show up. PE firms face litigation not just from regulators, but from LPs, portfolio company boards, co-investors, and even internal disputes. It’s a highly litigious space, and the insurance market has priced that in.
Venture hasn’t, yet.
Intent, Context, and the Legal Gray Area
To be clear, not every exaggerated forecast or overstated product claim is securities fraud. The law doesn’t punish optimism. It punishes deception.
Courts understand that early-stage startups operate with uncertainty, fast-moving product cycles, and an optimistic outlook baked into their DNA. When evaluating potential securities violations, regulators and judges do consider intent, context, and industry norms.
A pitch deck that overstates valuation might be seen as normal exaggeration if it reflects genuine belief in future growth - I believe that many founders actually believe they have a unicorn in their pocket.
Revenue projections based on pipeline optimism aren’t necessarily fraudulent - unless they're knowingly fabricated.
Founders might assume terms like “platform” or “AI-powered” are harmless marketing language. But if those terms imply capabilities that don’t exist, they can become material misstatements in the eyes of regulators.
In many cases, it’s not what the founder said, but what they knew (or should have known) at the time they said it.
Courts apply a “reasonable investor” standard, but when language crosses the line into misrepresentation, industry norms are not a defense. Courts may consider them to evaluate intent, but they don’t override the legal duty to avoid material misstatements.
And the more the startup ecosystem normalizes exaggeration, the more likely it is that regulators will try to reset the boundaries through enforcement.
Why This Matters for Startup D&O Insurance
Many startup founders assume their D&O (Directors & Officers) policy will provide protection in the event of a lawsuit or investigation. But when litigation arises from investor communications, the scope of coverage becomes highly specific - and often limited.
Key issues:
Fraud exclusions: Most policies do not cover claims involving intentional misrepresentation, and final judgments of fraud will trigger clawback of defense costs.
Misuse of funds: Conduct exclusions may apply when personal use of investor capital is alleged.
Capital raise exposure: Not all startup D&O policies are structured to respond to claims tied to private placements or investor pitch materials.
For venture-backed companies, startup D&O coverage must be built around real risks, including the potential for investor claims, regulatory investigations, and internal disputes.
Without proper structuring, startup D&O policies may fail to respond in the exact scenarios founders assume they’re covered for - especially when the claim begins with what was said in a pitch.
What Startups and Investors Should Take From This Case
This wasn’t a high-profile IPO or a billion-dollar collapse. It was a private, early-stage investment - one of thousands that happen each year.
But the legal framework is the same.
Startups should:
Treat investor-facing materials as legal documents, not just marketing content
Ensure factual claims about products, finances, or partnerships are accurate and current
Review D&O policies with counsel or a specialist to ensure they cover this category of exposure
VCs and board members should:
Understand how D&O coverage applies when misstatements come to light
Encourage risk audits during or after capital raises
Avoid assuming coverage exists simply because a policy is in place
Conclusion
Many founders assume their D&O policy will protect them in the event of litigation or regulatory scrutiny. But standard policies - especially startup D&O insurance issued at the early stage - often contain exclusions or structural limitations that leave founders and boards exposed.
This case is a clear reminder: The materials you send to investors can, and will, be used in litigation. Coverage needs to be built with that reality in mind.
If your D&O policy hasn’t been reviewed since your last round, we recommend doing so now. Contact us to ensure your insurance is designed to respond when investor communications are challenged.