Most companies that go public haven’t recently violated securities laws and most don’t readily admit that they’ll probably do it again. (But at least they’re truthful in their disclosure! As required.) They also have the boilerplate “this is a highly regulated industry” language as a separate risk:
> Our business is subject to extensive, complex and changing laws and regulations, and related regulatory proceedings and investigations. Changes in these laws and regulations, or our failure to comply with these laws and regulations, could harm our business.
This risk also stood out to me because it’s something I usually associate with SPACs:
> As a result of our recent settlement with the SEC, we are currently considered an “ineligible issuer,” which limits our ability to use certain free writing prospectuses in securities offerings and will delay our ability to qualify as a “well-known seasoned issuer” in the future.
SPACs are an ineligible issuer because they’ve been a blank check company, shell company, or penny stock issuer in the last three years. While I don’t have many nice things to say about SPACs the ineligible issuer language is pretty benign boilerplate in that situation.
RH, on the other hand, is an ineligible issuer because they were C&D’d by the SEC for violating the anti-fraud provisions of the federal securities laws in the last three years. Companies typically seek to avoid committing securities fraud in the run up to their IPO. So while the risk factor itself (not a WKSI) isn’t necessarily unusual the reason for the risk is and it speaks directly to management’s (at best) inability to appropriately manage the regulatory risk or (at worst) lack of trustworthiness.