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Private Placement Securities Fraud Attorneys Representing Clients Nationwide
In addition to traditional stocks and bonds, investors can also consider private placements. Before investing in any security, however, it is important to thoroughly review the investment. Determine if you can handle the risks associated with the investment while meeting your financial objectives. If you do not fully understand how private placements work, it can leave you vulnerable to fraud. Private placement fraud can occur when a company lies about the investment they are offering. It may also happen when stockbrokers sell unsuitable private placements to unqualified investors.
If you have invested in a private placement without fully understanding it and suffered financial losses as a result, Weltz Law can help investigate the possibility of broker misconduct. Our private placement securities fraud attorneys will help develop strategies to pursue claims against perpetrators.
What are Private Placements?
A private placement is a type of security that is sold without an IPO (Initial Public Offering). These investments do not involve formal registration procedures as per Regulation D of the Securities Act of 1933. The rationale is that the typical private placement is only sold to sophisticated investors or a few select.
Understanding SEC Rule 506 of Regulation D
According to the U.S. Securities and Exchange Commission (SEC), companies that want to raise funds without going through a formal public offering can do so by selling their securities to accredited investors. Companies, however, cannot use solicitation or general advertising methods. While these companies can sell securities to up to 35 non-accredited and sophisticated investors, these individuals must have enough experience and knowledge in both financial and business matters. They must be able to evaluate the risks and merits of the prospective investment. Many companies enjoy the advantage of Regulation D because it allows them to raise money without a lot of red tape. In addition, stockbrokers get paid higher commissions should they successfully get someone to invest in these offerings.
Lack of Due Diligence is a Major Contributor to Private Placement Securities Fraud
In addition to reading the issuing company’s Form D, it is important to request more information from your broker. For example, economic risks surrounding the company’s business, competitors in the industry, and more. They must be able to review all aspects of the issuing company and the private placement. Stockbrokers have an obligation to make investment recommendations that are suitable to your risk tolerance and financial goals. The broker must be able to explain why the private placement is right for you before making you sign any paperwork.
