The big news in Silicon Valley this week was the Wall Street Journal report that “unicorn” medical testing startup Theranos is being investigated by both the Department of Justice and the Securities and Exchange Commission.

This follows the recent visit by SEC Chair Mary Jo White to the Valley where she made clear that the SEC was focused on potential securities law issues related to highly valued startup companies. As I made clear in a book chapter I wrote for a collection edited by UCLA’s Steve Bainbridge, the securities laws prohibit fraud at both public and private companies.

When the pipeline to an IPO slowed for the tech sector in the wake of the dotcom crash many companies opted to stay private longer. When the credit crisis hit that problem deepened. But as the recovery took hold money flooded into certain sectors in the Valley and valuations of many companies soared, giving rise to the “unicorn” label – entities with more than a billion dollar valuation but still privately or closely held.

But just because a company has not yet engaged in a public offering of its shares does not mean the prohibitions agains securities fraud do not apply. They do, even where there is an exemption available that allows a company to limit the disclosure it provides investors. In fact, this is a regulatory framework I am explaining to my securities law students this week.