For one, he not only committed insurance fraud by creating a macro &amp; circumventing state insurance regulations, he enabled others to commit fraud as well.  The reputational risk to the company could be tremendous.  Secondly, by knowing about this then participating in a $10mm sale may constitute securities fraud for witholding material information of the company.  This may ultimately lower the valuation of your stock and options.  Further, the company may have been valued based on bad information (unlicensed &amp; unqualified brokers) that doesn&#x27;t accurately reflect the viability of the company.<p>Insofar as other founders who dumped stock prior to bad news coming out, I can think of Mark Pincus of Zynga off the top of my head.