Actually no, pretty much all stock offerings include specific language that says pretty much this; and not saying so does make you liable in case if it does happen (and let's be real, it's hard to imagine any venture-capita-like endeavor where there's not at least 20+% chance of going bankrupt), and just like in this case - this is one of main factors that caused this guy to go to jail. Yes, here there were other wrongdoings as well, but generally taking on risky investments and assuring that they are safe is a crime by itself; while taking money and losing it in a totally risky business is legal as long as you have properly disclosed the risks.